Spritzer’s headline net profit increased by 39% YoY to RM11.3m, mainly driven by stronger demand for bottled water as well as higher average selling prices (ASP). After adjusting for one-off items, Spritzer’s core net profit came in at RM9.1m. For full-year FY22, Spritzer’s core net profit of RM34.4m was in-line with our and consensus estimates at 95% and 102% respectively. Given the recent run-up in share price, we downgrade our Outperform call on Spritzer to Neutral as we believe that the positives have already been priced-in. Our TP is lowered to RM2.45 (previously RM2.50), based on 13x FY23F EPS on an enlarged share base after taking into account employees’ share grant plan. On a side note, Spritzer proposed a dividend of 6.25sen, representing a dividend yield of 2.8%.

• 4QFY22 revenue grew by 8% YoY to RM108.7m. The better performance was driven by the increased sales volume for bottled water, in tandem with the reopening of economic and tourism activities. Furthermore, the revenue growth was also lifted by the ASP hikes. The group adjusted c.5-10% of its ASP throughout FY22. On a QoQ basis, Spritzer’s revenue fell -9.1%, on lower sales volume as demand normalized. This was likely due to the higher discounts (promotional activities) provided by Spritzer given the launch of a new packaging for its core brand Spritzer in 3QFY22, thus leading to stock up activities among its customers.

• 4QFY22 core net profit rose by 15.8% YoY to RM9.1m, after stripping out an insurance proceed amounting RM2.3m in relation to the flood loss in Dec 2021. Spritzer saw its GP margin decline by 0.5 ppts to 10.5%, mainly dragged by the increase in raw material price (resin price). Meanwhile, China operations net loss widened to RM0.9m, likely attributable to the prolonged Covid-19 lockdown.

• Outlook. We expect water bottled demand to remain robust on higher capacity (1bn litres per annum from 850 litres per annum previously), recovery in economy and tourism activities as well as growing health awareness among consumers. However, we remain cautious over operating profit margins mainly due to higher electricity cost and the strengthening of the USD as resin prices are quoted in USD. While management does not plan to adjust its ASP for the time being, we do not discount the possibility of additional price hikes should costs remain elevated. In addition, we expect Spritzer’s operations in China to remain a drag despite the reopening of economy given the intensive competition and high logistical costs.

Source: PublicInvest Research - 28 Feb 2023