• Downgrade to HOLD (TP: RM2.05). Spritzer's FY23 net profit of RM49.5mn (+43% YoY) was in line with both our and consensus expectations, accounting for 98% respectively. In 4QFY23, Spritzer's revenue and net profit rose to RM125mn (+15% YoY) and RM13.2mn (+17% YoY) respectively, driven by an increase in sales volume of bottled water, higher average selling price (ASP), and reduced raw material costs. Looking ahead, the outlook remains promising, supported by stable bottled water demand due to a resurgence in tourism. Nonetheless, input costs remain a concern due to a weak ringgit, but could be partially mitigated by current lower raw material prices (i.e., PET resin). We downgrade our rating to a HOLD call with an unchanged TP of RM2.05, pegged at a PER of 12x to FY24 EPS of 17 sen. The share price has increased by 48% since its lowest point in July 2023, and we believe it already reflects the positive outlook of resilient demand for bottled water.

• Key highlights. Spritzer's FY23 revenue improved by +13% YoY to RM490.7mn, 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 (which contributes to over 90% of Spritzer's total revenue) grew by +15% YoY, effectively mitigating the decline in the plastic packaging materials segment (-19% YoY). Net profit experienced a substantial +34% YoY increase, accompanied by a +2.1 ppts YoY improvement in margin. This enhancement was primarily attributed to lower raw material costs, which helped offset the higher selling and distribution expenses. On a QoQ basis, both revenue and net profit decreased by -6% and -22% respectively, mainly due to lower sales volume and higher overall operating costs.

• Earnings Revision. No changes to our forecast.

• Outlook. Spritzer's sales growth is expected to be supported by resilient demand for bottled water, driven by the revival in tourism and increasing awareness of healthier drinks. The group plans to increase its capacity to 1.2bn litres p.a. (from 1bn litres p.a.) by adding 2 new production lines in Taiping (commenced in December 2023) and Yong Peng (targeted for commissioning in 1QCY24). They are also focusing on expanding their market presence in Singapore, leveraging the increased capacity in Yong Peng. We remain concerned on input costs, primarily due to the unfavourable USD/MYR currency rate, as main raw materials (i.e. PET resin) are quoted in USD. However, this could be partially mitigated by the current lower resin raw material prices (which fell by c.8% from the peak in April 2023) and cost efficiency initiatives.

Source: BIMB Securities Research - 29 Feb 2024