Investment Highlights

• We reiterate our BUY call on Spritzer with a higher fair value of RM2.90/share (from RM2.70/share previously), based on an unchanged FY23F PE of 15x – 0.5 standard deviation above its 7-year mean. This reflects an unchanged neutral ESG rating of 3 stars.

• Spritzer’s FY22 results (after excluding one-off flood insurance proceed of RM2mil) was above our expectation albeit within consensus. The core earnings of RM35mil was 7% higher than our forecast and 3% above street’s.

• Hence, we raise our FY23F-FY24F earnings by 5%-6% after imputing higher sales assumption and recovery rate for its water production. We also tweak our cost assumption higher to reflect on the minimal wage effect. Also, we introduce our FY25F earnings of RM49mil premised on a revenue growth of 5% YoY.

• YoY, FY22 core earnings rose 43% on the back of a 31% revenue growth, buoyed by higher sales of bottled water and related products (+31% YoY) from increases in volume and average selling prices. Sales of plastic packaging materials were also up by 24% YoY.

• Similarly, 4QFY22 earnings of RM9mil jumped 11% as revenue increased by 8% YoY, lifted by more selling volumes and prices.

• QoQ, 4QFY22 sales dropped by 9% whereas bottomline declined by 21% on lower sales volume and lower average selling price.

• The group declared an FY22 total dividend of 6.25 sen per share, translating to a yield of close to 3%. We estimate an FY23F dividend of 6.7 sen per share, equivalent to a yield of 3%.

• We are positive on Spritzer’s near-to-medium term outlook, sustained by its growing bottled water business alongside the plastic packaging segment. Management guided a high single-digit increase in FY23F labour cost due to the implementation of minimum wage.

• Spritzer’s bottled water market share is currently 40%-45%. In terms of expansion, the group is looking ahead to Singapore, in which it is in the midst of searching for suitable distributors. Also, with the new raw water treatment plant in Taiping commencing operations in 4QFY22, we expect a better production efficiency on higher yield moving forward.

• The group currently trades at a compelling FY23F PE of 12x vs. its 7-year mean of 14x while offering a decent dividend yield of 3%.

Source: AmInvest Research - 28 Feb 2023