KUALA LUMPUR: NTPM Holdings Bhd's cost structure is expected to improve over the financial year 2024 (FY24) to FY25 due to a decline in raw-material prices (pulp paper & plastic) and freight costs, said Affin Hwang Capital Research.
The research house expects pulp paper prices to be more favorable in the coming periods as more supply of pulp paper is expected to come on stream as a major producer, China, reopens.
It also said freight costs are expected to decline with the ease of supply-chain constraints.
"We expect these easing cost pressures to help offset the increase in utility costs attributable to higher electricity tariffs effective 1 January 2023.
"With that, we project core profit margins to improve from 0.03 per cent in FY23 to 1.8 per cent in FY25," it said.
Meanwhile, Affin Hwang Capital said the demand for tissue paper has proven to be recession-proof being a necessity for daily use.
The firm expects stable demand and sales for NTPM's products despite the challenging economic times.
"Therefore, we forecast NTPM's top line to grow at a seven per cent of compounded annual growth rate (CAGR) over FY22-FY25, contributed by its tissue paper (8.9 per cent) and personal care (2.1 per cent) segments," it said.
While Affin Hwang Capital has NTPM's FY23 earning per share (EPS) forecast by 15 per cent, it raised the company's FY24 toFY25 EPS estimates by 60 per cent and 39 per cent, respectively.
This is because the company is still facing high-cost pressures in FY23, but should be better off throughout FY24 to FY25, it said.
"We are also optimistic about its new major shareholder which could bring synergistic benefits to SunCon.
"With the worst already likely behind, and a brighter outlook ahead, we upgrade the stock to a Buy from Sell with a revised target price of 55 sen," it added.