KUALA LUMPUR: NTPM Holdings Bhd is on track to transition to an earnings upcycle, underpinned by capacity expansion and sustainable margin growth, says RHB Research.The research house reiterated its "buy" call on the stock following in-line earnings results with core net profit of RM28.4mil in 1HFY20.RHB made no material changes to its earnings forecasts and kept its target price at RM1.03, which implies 17x FY22 forecast price-earnings.It said valuation is undemanding with the stock trading at close to its five-year mean despite the exciting earnings growth prospects."We expect NTPM to enjoy an earnings upcycle, after its numbers trended south in FY18-20 – dragged down by losses from the Vietnam business, and the sharp surge in pulp prices."Essentially, margin expansion is sustainable as its pulp requirement is nowfilled until mid-2021, at low prices," said RHB.It added that NTPM's performance will be supported by a more favourable product mix wiht a surge in demand for wet wipes in the personal care segment.It said its business rationalisation plan where the production of its exported goods was reallacoted to the Vietnam plant has improved the scae of production and narrowed losses."The resultant spare capacity in its Malaysia plants has been repurposed to produce recycled-grade products."Meanwhile, the prospect of filling up newly expanded capacity (+45% in 2019) is gaining positive traction, with more orders expected to be secured ahead," it added.
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