KUALA LUMPUR: Tissue paper maker NTPM Holdings Bhd’s (NTPM) earnings in the near-term is likely to be challenging, weighed down by operational disruptions and additional costs arising from the third phase of the movement control order.

       Given the challenging market conditions in the near-term, its first half ending Oct 31, 2022 (1H’22) financial results is expected to be impacted by disruptions in its operations and the worsening Covid-19 pandemic situation, said RHB Research.

       NTPM’s net profit for its fourth quarter ended April 30, 2021 (Q4’21) rose to RM5.60mil from RM4.08mil a year ago, while revenue was lower at RM188.53mil from RM201.62mil a year earlier.

       For its financial year ended April 30, 2021 (FY21), NTPM Holdings’ net profit jumped 10 times to RM63.66mil from RM6.30mil in the previous corresponding period, while revenue stood at RM749.66mil from RM778.42mil a year earlier.

       The group said the improved performance was due to declines in costs of pulp, waste paper and important product stock utilised as well as RM12.6mil disposal gain of subsidiary.

       However, it was partly offset by the rise in employee benefits expenses of RM7.7mil and the unrealised loss on foreign exchange of RM6.4mil.

       Besides that, its lower revenue was dragged by the decrease in sales of tissue paper product.

       After the 1H22, RHB Research expects the challenging outlook to normalise with the sales recovery from away-from-home channels should the movement restrictions be lifted by year-end from the mass roll-out of vaccinations.

       “Demand from away-from-home channels and production output should normalise, following a broad economic reopening and lifting of restrictions in 2H’22,” it said.

       As such, the research house is keeping a “buy” call on NTPM with a target price of RM0.80.

       However, the downside risks to its outlook includes the sharp hike in raw material prices coupled with the increase in freight costs would lead to higher production costs.

       “However, we gather that a price increase has been implemented to pass on the extra costs,” it said.

       Moving forward, RHB Research expects its Vietnam operation performance to improve in FY22 given that its performance has been close to the break-even point.

       “In view of the resilient demand for tissue paper products, the turnaround in its Vietnam operations and continuous expansion plans, this quality consumer stock is currently trading at an undemanding valuation,” It said.

       With the debt restructuring of the group in place, the research house believes that NTPM is in a “good position” to regain its shariah-compliant status in the next Securities Commission review in November this year.

       The group’s net gearing has been reduced to 0.59 times in FY21 compared to 0.85times in FY20 after paring down borrowings by RM83mil.