INVESTMENT MERIT

- Unpolished gem among consumer stocks. Spritzer Bhd (“SPRITZR”) is an under-researched stock in the consumer sector with only one research house covering the stock so far. The stock is only trading at 9.0x Fwd. PER, which is at a deep discount against its peers which are trading at Fwd. PER of 13x - 23x. In addition, we believe that SPRITZR is poised for a rerating due to its good earnings growth prospect, increasing dividend payout and an improving balance sheet.

- Record high earnings soon? SPRITZR recently announced its 9M13 net profit at RM13.3m, which by itself is already higher than last years’ earnings of RM10.6m and an all-time high earnings of RM12.5m that made in FY10. Hence, we reckon that SPRITZR is poised to deliver a 60% earnings growth to RM16.9m this year, underpinned by the increase in its sales volume of bottled water and lower PET resin prices. Note that our projection is considered conservative as the 9M13 result already made up 79% of our forecast. In addition, we think that FY13E dividend should increase to 3.5 sen (FY12: 3.0 sen) in line with the better earnings.

- Improving balance sheet. As at end-Feb 2013, SPRITZR has pared down its net gearing to 0.49x from 0.54x in end-May 2012 and 0.60x in end-May 2011. We view this trend ositively as it shows that the company’s fundamentals are getting stronger.

- Trading Buy for the potential rerating catalyst. We believe that the nearest comparison to SPRITZR is Power Root Bhd. (“PWROOT”) as both companies are considered small cap consumer stocks with market cap of below RM500m. As SPRITZR current valuation of a Fwd. PER of 9.0x is at a steep 31% discount against PWROOT’s 13.0x, we think that there is room for SPRITZR’s valuation to appreciate as both companies are operating in the same beverage industry in Malaysia. We value SPRITZR at RM1.35 based on 10.5x Fwd. PER on its FY13E EPS of 12.9 sen. Our 10.5x Fwd. PER is in line with its 5-year historical average PER. TRADING BUY.

SWOT ANALYSIS

- Strengths: Domestic market leader in natural mineral water production.

- Weaknesses: Small market cap.

- Opportunities: Launch of new products like carbonated fruit flavoured drink/functional water may support revenue growth.

- Threats: Competition from other water bottlers.

TECHNICALS

- Resistance: RM1.20

- Support: RM1.13

- Views: Uptrend remains intact

Comments: A breakout of the long rectangle shape was sported recently. The chart looks likely to trade sideways with the key resistance being at RM1.20 level. Should this level be taken out in a decisive manner, the share price could potentially advance another 12 sen to RM1.32.

BUSINESS OVERVIEW

Spritzer Berhad (“SPRITZR”) is involved in the production of natural mineral water, carbonated flavored water, distilled water and drinking water. Spritzer also manufactures and sells Polyethylene Terephthalate (PET) bottles, toothbrushes and plastic household goods. The bottled water manufacturing segment represented over 93% of the group’s total revenue in FY12.

BUSINESS SEGMENTS

Basically, the group has two major business segments namely:

- Manufacturing: Includes the production of natural mineral water, carbonated flavoured water, distilled water, drinking water, non-carbonated flavoured water, PET preforms, PET bottles, caps and toothbrushes.

- Trading: Includes sale of bottled water and other consumer products.

Source: Kenanga