Spritzer reported a positive set of results. The group's net profit grew by 44.5% YoY to RM52.4mil in 9MFY24 on the back of higher sales volume and operating profit margin. The group has also proposed a 1-for-1 bonus issue. We maintain BUY on Spritzer with a higher target price of RM3.54/share vs. RM3.07/share previously. Our target price is now based on a FY26F PE of 15x instead of FY25F originally. The PE of 15x is the five-year mean.

• 9MFY24 net profit was 12% above our forecast but within consensus. Spritzer exceeded our expectations due to a stronger-than-expected EBITDA margin. We have raised the group's FY24F net profit by 7.2% to account for this.
• Net profit growth of 44.5% YoY in 9MFY24. Revenue of the manufacturing segment expanded by 17% YoY to RM408.9mil in 9MFY24 underpinned by a rise in the sales volume of bottled water products. We believe that the demand was driven by higher tourist arrivals. According to Tourism Malaysia, tourist arrivals rose by 28.9% YoY to 11.8mil in 1H2024.
• Expansion in EBITDA margin in 9MFY24. Spritzer's EBITDA margin widened to 19.6% in 9MFY24 from 17.8% in 9MFY23. We attribute this to efficiency gains from the installation of new production lines and a lower cost of PET. PET accounts for 70% of production costs. Spritzer normally keeps two months of PET inventory.
• Quarterly earnings momentum eased in 3QFY24. Net profit declined by 13.3% QoQ to RM17.1mil in 3QFY24. This was due to higher depreciation and effective tax rate. Revenue was flat at RM146mil.
• Going forward, China unit is envisaged to turn around. The China unit is expected to break even in FY25F or FY26F after a small loss of RM3mil to RM5mil in FY24F. The earnings turnaround is envisaged to be underpinned by an improvement in sales volume. To recap, Spritzer's China unit has been in the red since it started operations in FY16. The division's sales volumes in China have been weak as the Chinese market is competitive.

Source: AmInvest Research - 28 Nov 2024