Investment Highlights

• We maintain BUY call on Spritzer with an unchanged fair value (FV) of RM3.07/share, pegged to FY25F PE of 15x – 2SD above its 5-year mean of 12x. We continue to ascribe a neutral ESG rating of 3 stars.


• We maintain our FY24F-FY26F earnings following an analyst briefing yesterday. Our optimistic outlook on the company remains unchanged. Key takeaways from the briefing are:
   
  • Management highlighted that sales at each outlet are growing at an accelerated pace, driven by increased tourism activities.
  
  
  • For FY24F, management has earmarked a total capex of RM70mil-RM80mil. YTD, the group has added 2 new production lines with 1 each at Taiping and Yong Peng bottled water plants. Due to strong demand, the group will add another line in Taiping, which is estimated to increase current capacity of 1.2bil litres per annum by 5%.
  
  
  • As operating cash flow is insufficient to fully cover both dividend payments and capex, the group plans to fund with borrowing. While gearing is expected to increase slightly over the next few quarters, net gearing ratio is projected to remain comfortably below 20%. The group is strategically focusing on expanding its market presence in Singapore, targeting to increase contribution to total revenue from 7%-8% to 10% over the next 2-3 years. Apart from the Singaporean market, management is also bullish on demand prospects in Johor. Hence, we believe our recently-revised earnings forecast has adequately accounted for the potential earnings from the markets in Singapore and Southern region in the coming years.
  
  
  • On cost front, Spritzer has maintained a 2-month stockpile of plastic resin, which helps buffer against immediate impact from any sudden price increases, thereby mitigating potential cost pressures.


• From a valuation perspective, the stock is currently trading at an attractive 12.7x FY25F PE, which is at a discount to its 5-year peak of over 15x.

Source: AmInvest Research - 5 Sep 2024