Spritzer’s 3QFY22 core net profit jumped 89.2% YoY to RM11.3m, on the back of greater economies of scale and adjustment in average selling price (ASP). Cumulative 9MFY22 core net profit of RM25.3m were above our and consensus estimates, accounting for 92% of our full-year forecast. The discrepancy in our numbers was mainly due to the better-than-expected profit margins given the greater production efficiency on stronger sales. We adjust our earnings for FY22- 24F upwards by 29-33%, to factor in the stronger-than-expected demand for bottled water. Following our earnings adjustment, we upgrade our call on Spritzer from Neutral to Outperform, with a higher TP of RM2.50 based a PE multiple of 13x FY23F EPS (in-line with its average 3-year forward PE).

• 3QFY22 revenue grew by 50.7% YoY to RM119.6m. This was mainly due to the stronger demand for bottled water as economy and tourism recovers. In addition, revenue growth was also supported by the higher ASP for its core brand, Spritzer (around c.5%). Meanwhile, we gather that Spritzer is currently running at a high utilization rate of c.80%.

• 3QFY22 net profit jumped 90.8% YoY to RM11.4m, thanks to the greater economies of scale which resulted in its net profit margin rising by 2.1ppts to 9.6%. We understand that Spritzer also benefitted from a better sales mix, given the strong demand for its flagship brand Spritzer, partly boosted by the success of its new bottle packaging. On the flip side, China operations recorded a wider operating loss of RM0.7m, likely dragged by the prolonged Covid-19 lockdown.

• Outlook. We upgrade our call on Spritzer to Outperform, as we believe that the worst is likely over. As Polyethylene Terephthalate (PET) price has tapered off by c.30% from its peak in the 1HFY22, we are expecting margins pressure to ease going forward. Packaging cost is one of the main raw material cost, making up 70% of the group’s raw material costs. Furthermore, the recovery in economic and tourism activities as well as the growing health awareness (clean, hygienic and high mineral content bottled water) among consumers will continue to drive Spritzer’s long-term sales growth. We understand that Spritzer has completed the installation of a new production line in its Shah Alam plant and is expected to contribute positively in 4QFY22. This brings the annual production capacity to 1bn litres per annum from 850m litres per annum.

Source: PublicInvest Research - 29 Nov 2022