• Maintain to HOLD (TP: RM2.50). Spritzer's 1QFY24 net profit of RM15.5mn was in line with both our and consensus full-year forecast, at 28% and 29% respectively. The higher performance in both revenue (+23% YoY) and net profit (+117% YoY) was mainly 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 and improved export sales. Nonetheless, input costs remain a concern due to an unfavorable exchange rate but could be partially mitigated by stable raw material prices (i.e., PET resin). Maintain a HOLD call with a higher TP of RM2.50, pegged at a PER of 14x (around 5-year average historical PE) and EPS of 17.9 sen as we rolled over our valuation to FY25F.

• Key highlights. Spritzer's 1QFY24 revenue improved by +23% YoY to RM135mn, 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 c.95% of Spritzer's total revenue) grew by +25% YoY, effectively mitigating the decline in the plastic packaging materials segment (-9% YoY). Net profit more than doubled to RM15.5mn, with margins improving by +5 ppts YoY, thanks to lower raw material costs (likely resin) as well as a lower effective tax rate of 14.2%. On a QoQ basis, both revenue and net profit increased by +8% and +17% respectively, supported by seasonally higher quarter sales from Ramadhan and CNY festivities.

• Earnings Revision. No changes to our forecast.

• Outlook. Spritzer's positive sales growth is expected to be supported by resilient demand for bottled water, driven by the revival in tourism and improved export sales. The group's capacity will increase by 20% to 1.2bn litres p.a. by 2024 from the expansion of its new Taiping 2 production lines and Yong Peng plant. We remain positive on its strategy to increase export in Singapore, expand its distribution channel to the HORECA segment, and initiatives to reduce costs as well as increase productivity by upgrading pallets of the ASRS warehouse, which will sustain its long-term earnings growth. Nevertheless, we remain concerned on input costs, primarily due to the unfavourable exchange rate, as main raw materials (i.e.,

Source: BIMB Securities Research - 31 May 2024