Investment Highlights

• We maintain BUY call on Spritzer with a higher fair value of RM2.56/share (from RM2.27/share), based on a rolled- forward FY25F of PE of 15x, at 1 std deviation above its 7- year mean of 13x. We make no adjustment to our neutral ESG rating of 3 stars.

• We maintain FY24F-FY25F earnings as FY23 net profit of RM50mil came within expectation, 2% above our forecast and 2% below consensus estimate. We introduce FY26F net profit with a 9% growth premised on revenue expansion of 3%.

• YoY, the group’s FY23 earnings rose 43% 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 reduction in raw material costs.

• QoQ, 4QFY23 revenue slid by 6% due to lower bottled water sales volume likely due to unfavourable sales mix. Coupled with high marketing cost for a new product (sparkling lemon water) and lower economies of scale, which caused EBITDA margin to decrease by 2%-points to 19.5%, 4QFY23 net profit declined by 22% QoQ to RM13mil.

• Looking forward, we continue to be positive on Spritzer’s prospects on the back of:
  
  (i) lower raw material costs of plastic resin,
  
  (ii) increased domestic travelling,
  
  (iii)expansion of product range to enhance the group’s leading market position, and
  
  (iv)continuous arrival of international tourists against the backdrop of easing travel regulations. The Immigration department reported that tourist arrivals increased to 29mil in 2023 vs. 26mil in pre-pandemic 2019.

• Furthermore, the group expects better revenue contribution from Singapore, as the new production line in Yong Peng will commence by March 2024. We expect this to help reduce logistic costs in Singapore and strengthen Spritzer’s market presence.

• The group currently trades at an attractive FY24F PE of 14x vs. its 5-year peak of 16x while offering a decent dividend yield of 3%.

Source: AmInvest Research - 29 Feb 2024