Investment Highlights

• We maintain BUY on Spritzer with unchanged fair value of RM2.27, based on unchanged FY24F PE of 14x, at parity to its 7-year mean. We make no adjustments to our neutral ESG rating of 3-star.

• No changes to our earnings forecast after an engagement session with the management recently.

• Spritzer’s plant utilization rate is at 75% currently, an improvement from 70% in 3QFY23 as the group gained market share from existing smaller players as well as due to the robust demand of bottled water. The group has allocated RM36mil capex for two additional production lines in its plants in Taiping and Yong Peng. Production capacity of each of the plant will be increased from 1bil liter to 1.2bil liter per annum.

• Works on the new production line in Taiping has commenced in Dec 2023 while that for in Yong Peng will kick start in 1QCY24. We have factored in the increase of 15-20% earnings contribution from the new production lines in our FY24F-FY25F net profit forecast.

• We believe that with the increase of local as well as foreign tourist arrivals especially during the holiday season will increase its sales and gradually utilize the additional production capacity. We expect tourism to improvement in 2024 due to government’s effort on the 30-day visa free exemption for tourists from China and India coupled with improved flight connectivity. The group highlighted that sales in 2023 has improved by 10% attributed to recovery of tourism and higher ASP and is likely to sustain in 2024.

• Management guided that their average cost for resin has declined by 21% YoY as of September 2023, while plastic resin market price fell by 15% from the peak in April 2023. We expect prices for plastic resin to continue to sustain at the low levels, ranging from USD950/MT to USD1000/MT in 1HFY24. (Exhibit 1)

• The group plans to introduce 2-3 new beverages in 2024 to enhance their market leadership position. Recently, Spritzer has launched their new product, Sparkling Lemon water in Dec 2023. This product will be able to attract new customers, aligning with the market trend of flavoured beverage by teenagers.

• We continue to be positive on Spritzer’s prospects on the back of: (i) Increased in ASP of 5-10% in FY23 with stable increase of 10% in volume; (ii) Stable net margin of 7-8% annually; (iii) Lower raw material costs especially on plastic resins; (iv) Robust domestic travelling especially during festive seasons, and (v) Continuous arrival of international tourists against the backdrop of easing travel regulations. Malaysia airports holding berhad reported an increase of 38% YoY to 116mil passenger throughput in 2023 as compared to 2022.

• Furthermore, the group is focusing on expanding its market presence in Singapore, which we believe is underpenetrated but incurring high logistic costs currently. The new production in Yong Peng will commence by 1QFY24, and this is expected to help reduce logistic costs in Singapore.

• Spritzer organised an educational event - “be sustainable with spritzer” relating to ESG in Pavilion, Bukit Bintang recently. This helps to increase the awareness to the public that Spritzer bottled water is 100% recyclable which is eco-friendly products. Besides, we believe this event also to alert the public on recycling of bottled waters after drinking.

• The stock currently trades at an attractive FY24F PE of 12x vs. its 5-year peak of 16x while offering a decent dividend yield of 4%.

Source: AmInvest Research - 8 Jan 2024