• MYR3.45 FV. Trading at a c.30% discount to the average industry valuation, Spritzer’s resilient business and dominant market position is likely undervalued by the market. Evidently, its 5-year historical revenue and earnings CAGR stood at 7% and 15%, supported by the steady growth of bottled water consumption, rising brand equity, and continuous efficiency gain. These factors will continue to drive growth going forward, further supported by a stronger focus on export and food service and hotel industries (HORECA) markets as well as proliferating sparkling water consumption.

• Prospering in a conducive environment. As one of the household local consumer brands, Spritzer has grown its sales consistently over the years supported by the rising consumer demand for bottled water as a convenient option. The positive consumption trend is also driven by the higher disposable income, urbanisation as well as improving health and hygienic awareness. In addition, the rapidly mushrooming modern trade network (Mr DIY, 99 Speedmart, various convenience stores and etc) is instrumental as a facilitator of accessibility. Meanwhile, Spritzer, on its part has also been firing on all cylinders in the areas of manufacturing, brand-building and cost control to strengthen its market share, estimated at >40% after years of growth.

• Eyeing greater opportunities in HORECA and Singapore markets. Spritzer is aiming to boost its export sales by bolstering the distribution channels and partnering prominent retailers in Singapore. It is also investing on brand building to ride on to the promising Spritzer traction in Singapore (+60% YoY in 1H24) as the new packaging has given the brand a premium brand image, and hence, stronger competitiveness. On the other hand, Spritzer will allocate more resources to develop the HORECA channels (currently 1% of total sales) as this market has been growing tremendously in recent years. It will engage more specialised distributors for deeper market penetration and the wide range of product offering should render it competitive advantage.

• More sparks from the sparkling water. Going forward, another Spritzer’s focus will be on sustaining the positive growth momentum of sparkling water. We highlight the sales contribution of sparkling water has increased substantially from <MYR3m in FY19 to MYR4-5m in 1H24 thanks to the evolving consumer demand and the company’s effective marketing initiatives. Spritzer has recently increased the capacity of sparkling water by 3.5x given the exciting growth potential as well as higher profitability (1.5x margin vs other products).

• Risks to our recommendation include a sharp rise in input costs and major loss in market shares.

Source: RHB Securities Research - 13 Nov 2024