Life Water Berhad (LWSABAH, 5328) makes its debut on Bursa’s Main Market today. LWSABAH specialises in bottled water, carbonated drinks, and packaging products with several manufacturing facilities across Sabah. We project LWSABAH to register net earnings of RM29.1m, RM31.4m, and RM34.8m for FY25F-FY27F. BUY with a target price of RM0.79, based on a FY26F PE over 12x, reflecting a 30% discount to its industry peer’s average PE due to its smaller market capitalisation.

With an estimated 11% of Malaysia's bottled water market, LWSABAH leverages on its robust production and a Sabah-wide distribution network of 4,020 touchpoints and 75 delivery trucks. LWSABAH’s products are marketed under popular in-house brands such as "K2," "Sasa," and "Sabah Water" for drinking water, and "2more" and "TRITONiC" for carbonated beverages. LWSABAH’s advanced factory automation reduces production costs while enhancing quality control, giving it a technological edge in efficiency and consistency. Combined with a diverse product line and trusted brand, LWSABAH is a formidable player within the competitive beverage market.

LWSABAH is focused on significant expansion plans to boost production and broaden its market reach. Key initiatives include scaling up production and launching of a new plant in Keningau, adding 59m litres of capacity by December 2024. Additionally, two new production lines are planned for Sandakan by 2025 and 2027, each adding 178m litres. LWSABAH is also targeting new markets in Sarawak and Brunei and enhancing distribution in Tawau with a dedicated centre. These expansion efforts are expected to boost Life Water’s output and revenues hence its growth trajectory. Over the next two years, Sabah and Sarawak are expected to see significant economic growth, driven by substantial investments by the Federal government. Key projects include the Pan Borneo Highway, airport expansions, and large infrastructure developments, with allocations from Budget 2025 reaching RM6.7bn for Sabah and RM5.9bn for Sarawak. As a leading bottled water supplier to hotels, LWSABAH is well-positioned to ride the rising economic growth. Additionally, regional opportunities in Southeast Asia, such as demand in Brunei and other parts of Borneo, present significant growth potential for LWSABAH. Balance sheet is manageable, gearing ratio will reduce to 0.58 from 0.88 post listing as proceeds from IPO will be used for capex expansion. The company has a dividend policy at minimum 20% of net profit. Thus, we project forward dividend yields of 1.9%, 2.0% and 2.3% for FY25F, FY26F and FY27F respectively.

Source: Rakuten Research - 13 Nov 2024

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