Investment Highlights

• We maintain BUY call on Spritzer with a higher fair value of RM3.19/share (from RM2.27/share), pegged to FY25F PE of 17x (from 15x) - at 2.25 std deviation above its 7-year mean of 13x, which is also the average of Bursa Consumer Index. We make no adjustment to our neutral ESG rating of 3 stars.

• Spritzer’s 1QFY24 earnings of RM16mil came above expectations, making up 29%-30% of our and consensus forecast. As a comparison, 1Q accounted for 15%-19% of FY22-FY23 net profit. Thus, we increase FY24F-FY26F earnings by 7%-10% to reflect higher sales estimates for bottled water.

• YoY, the group’s 1QFY24 earnings rose 2.2x on the back of 24% revenue growth, buoyed by higher sales of bottled water and related products (+25% YoY). This was mainly attributed to increased sales volume and average selling prices as well as reduction in raw material costs.

• QoQ, 1QFY24 revenue rose by 8% due to higher bottled water sales volume. Coupled with a reduction in raw material cost and lower effective tax rate from reinvestment allowance, 1QFY24 net profit improved by 18% QoQ to RM16mil.

• Looking forward, we continue to be optimistic on Spritzer’s prospects on the back of:
  
  (i) lower raw material costs of plastic resin,
  
  (ii) sustainable demand with strong brand awareness,
  
  (iii)increased domestic travelling,
  
  (iv)expansion of product range to enhance the group’s leading market position, and
  
  (v) substantively improving tourism as the Immigration department reported that tourist arrivals increased to 29mil in 2023 vs. 26mil in pre-pandemic 2019.

• The group currently trades at an attractive FY24F PE of 15x vs. its 5-year peak of 16x while offering a decent dividend yield of 2%.

Source: AmInvest Research - 31 May 2024