• Maintain BUY (TP: RM2.05). Spritzer’s 9MFY23 net profit of RM36.3mn (+41% YoY) exceeded both our and consensus expectations, accounting for 92% and 95% respectively. The deviation from our forecast was mainly due to higherthan-expected sales and lower operating costs. In 3QFY23, Spritzer's net profit rose to RM17mn (+40% QoQ, +48% YoY), driven by increased in sales volume of bottled water and higher average selling price (ASP), as well as reduced raw material costs. Looking ahead, the outlook remains promising supported by stable bottled water demand due to resurgence in tourism and lower raw material prices (i.e., PET resin). We raised our FY23f/FY24f earnings by 27%/28% to account for higher sales volume and lower costs. Maintain a BUY call with a higher TP of RM2.05 (previously RM1.86), pegged at PER of 12x (Spritzer’s -0.5SD average historical forward PE) to FY24 EPS of 17 sen.

• Key highlights. In 3QFY23, revenue improved by 11% YoY to RM132.6mn. This was driven by increased sales of bottled water, fuelled by robust domestic demand and a rise in ASP. Segment-wise, revenue in the sale of bottled water and related products segment (contributes >90% of Spritzer's total revenue) grew by +13% YoY, mitigating the decline in the plastic packaging materials segment (-35% YoY). Net profit experienced a substantial 48% YoY increase, accompanied by a 3.2 ppts YoY improvement in margin. This enhancement was primarily attributed to lower raw material costs, which helped offset the higher operating cost, especially selling and distribution costs. On QoQ basis, both revenue and net profit increase by +7% and +40% respectively, due to the same reasons mentioned above.

• Earnings Revision. We increased our FY23f/FY24f earnings by 27%/28% respectively, through adjustments in sales volume, increased ASP and lower cost assumptions.

• Outlook. Spritzer's sales growth is expected to be supported by stable demand for bottled water, driven by the revival in tourism and increased awareness of healthier drinks, as well as hygienic bottled water. The margin is anticipated to remain stable, given that the main raw material prices (i.e., PET resin prices) are projected to remain at lower levels. PET resin prices have been trending downwards YoY, decreasing by approximately 26% from their peak in mid- 2022. This trend could help mitigate the impact of the unfavourable USD/MYR currency rate and higher other operating costs (i.e., A&P).

Source: BIMB Securities Research - 28 Nov 2023