Investment Highlights

• We maintain BUY call on Spritzer with a lower fair value (FV) of RM3.07/share, pegged to lower FY25F PE of 15x (from 17x previously) – 2 SD above its 5-year mean of 12x. We continue to ascribe a neutral ESG rating of 3 stars.

• Spritzer’s 1HFY24 earnings of RM35mil were above expectations, reflecting 64% of our full-year forecast and 63% of consensus estimate. As a comparison, 1HFY23 accounted for 39% of FY23 earnings. Thus, we increase FY24F-FY26F earnings by 10% to reflect higher sales growth assumptions for bottled water.

• YoY, the group’s 1HFY24 earnings rose 83% on the back of 21% revenue growth, mainly driven by higher revenue from manufacturing (+21%) segment. This was attributed to increased sales volume of bottled water (+22% YoY), higher average selling prices and reduction in raw material costs. The strong growth in sales volume was lifted by rising tourist arrivals and hot weather.

• QoQ, 2QFY24 revenue surged by 9% contributed by higher bottled water sales volume (+9% QoQ). This growth, along with a reduction in raw material costs and lower effective tax rate (-4.5-point QoQ) from reinvestment allowances, led to a 27% improvement in 2QFY24 core net profit, reaching RM20mil.

• Moving forward, we maintain a positive view on Spritzer’s prospects, supported by:
  
  (i) volume growth on the back of rising tourist arrivals,
  
  (ii) lower plastic resin raw material costs, and
  
  (iii) strong brand in the bottled water segment which commands a market share of more than 40%.

• From a valuation perspective, the stock is currently trading at an attractive 12.5x FY25F PE, which is at a discount to its 5-year peak of over 15x.

Source: AmInvest Research - 30 Aug 2024