Investment Highlights

• We maintain BUY call on Spritzer with a higher fair value of RM2.27 (from RM1.81/share), based on unchanged FY24F PE of 14x, at parity to its 7-year mean. We make no adjustment to our neutral ESG rating of 3-star.

• We raise FY23F-FY25F net profit by 20%-43% to account for higher-than-expected water-bottled sales and lower raw material cost. 9MFY23 earnings of RM36mil came above expectation, accounting for 103% of our earlier FY23F net profit and 95% of consensus. As a comparison, 9MFY23 accounted for 74% of FY22 net profit.

• YoY, the group’s 9MFY3 earnings of RM36mil rose 41% on the back of 13% revenue growth, buoyed by higher sales of bottled water and related products (+15% YoY). This was mainly attributed to increased sales volume and average selling prices as well as the reduction in raw material costs.

• QoQ, 3QFY23 revenue grew by 7% thanks to higher bottled water sales volume amid the reopening economy and borders. Coupled with lower raw material costs and better operational efficiency, which caused EBITDA margin to increase by 5%-points to 21.4%, 3QFY23 net profit rose by 40% QoQ to RM17mil.

• We continue to be positive on Spritzer’s prospects on the back of (i) lower raw material costs as plastic resin prices declined 15% MoM from the peak in April 2023, (ii) robust domestic travelling, and (iii)continuous arrival of international tourists against the backdrop of easing travel regulations.

• Furthermore, the group is focusing on expanding its market presence in Singapore, which we believe is underpenetrated although incurring high logistic costs currently. The new production in Yong Peng will commence by end of 2023, which is expected to help reduce logistic costs in Singapore.

• The group currently trades at an attractive FY24F PE of 10x vs. its 5-year peak of 16x while offering a decent dividend yield of 4%.

Source: AmInvest Research - 28 Nov 2023