Investment Highlights

• We reiterate our BUY call on Spritzer with an unchanged fair value of RM2.90/share, based on a FY23F PE of 15x. The PE of 15x is premised on a 0.5 standard deviation above the 7-year mean of 14x. We have a neutral ESG rating of 3 stars for Spritzer.
  • We keep our FY23F earnings forecast for Spritzer but raise FY24F/FY25F profits higher by 7%/13% to account for higher production volume on the commissioning of its new lines. Here are the key takeaways from a recent briefing:-
  • To recap, Spritzer posted record-high turnover and net profit in FY22, with core earnings rising 43% on the back of a 31% revenue growth. The robust performance was due to higher selling prices and volumes.
  • Spritzer has 3 plants in total, located in Taipeng, Yong Peng and Shah Alam. Collectively, they have an annual production capacity of 1bil litres with an average utilization rate of 70%. Following the installation of a production line in 4QFY22, the group is also planning to add 2-3 production lines in FY24F, which would boost total capacity by 200mil litres per year to 1.2bil litres (from 1.0bil litres).
  • China operations are expected to continue making losses in FY23F albeit at a smaller quantum. We believe that the division would break-even in FY24F underpinned by higher sales volume and economies of scale. Meanwhile, the group is looking into Singapore market, where it has signed up a distributor. We believe that contribution from Singapore would be small in the near-term.
  • Operating expenses are rising due to higher electricity prices (+40% YoY) but the impact is expected to be partially offset by lower cost of raw materials. Without price adjustments, management foresees additional cost of RM6mil-RM7mil (15%-17% of bottomline) in FY23F. On a positive note, the average price of polyethylene terephthalate (PET) was US$1,000/MT in 1QFY23, lower than the US$1,200/MT recorded last year.
  • Spritzer has earmarked capex of RM60mil-RM70mil for FY23F. This is in respect of new warehouses in Shah Alam and Yong Peng. We also gather that labour supply has been healthy so far. The shortage issue has been resolved.
• 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%. Spritzer’s earnings outlook is positive supported by its market share of 40%-45%.

Source: AmInvest Research - 14 Mar 2023