Spritzer’s 1QFY23 headline net profit grew 7.7% YoY to RM7.2m, mainly attributable to an increase in sales volume and ASP. After stripping out non-core items, Spritzer’s core net profit of RM7.6m came in below our and consensus estimates, accounting for 19% of full-year forecast. The discrepancy was mainly due to higher-than-expected manufacturing cost, especially electricity cost. We adjust our earnings downwards by 4-12% for FY23-25F, as we lower our margin assumption to account for the increase in manufacturing costs. Our Neutral call on Spritzer is maintained, with a higher TP of RM2.50 (previously RM2.45) as we roll forward our valuation base year to 13x PER FY24F EPS.

• 1QFY23 revenue grew by 10.7% YoY to RM109.4m, driven by an increase in sales volume for bottled water products which we attribute to the increase in economic and tourism activities. Additionally, the adjustments in ASP throughout FY22 (c.5-10%) had helped Spritzer to boost its top-line.

• 1QFY23 core net profit increased by 15.5% YoY to RM7.6m, after adjusting for non-core items which includes sale of fresh fruit bunches. Spritzer’s operating profit margin fell by 0.5 ppts to 8%, mainly due to the increase in electricity cost given the rate hike imposed by TNB. Spritzer’s China operations saw its net loss doubled to RM0.8m, on lower sales and higher operating expenses.

• Outlook. We gather that the group is planning to earmark RM60-70m as capex to build new warehouses (Shah Alam and Yong Peng), and 2 new mineral water production lines in Yong Peng and Taiping as the group plans to increase its presence in Singapore. The new production line will increase its existing capacity from 1bn litres per annum to 1.2bn litres, and is expected to start commissioning in 1QCY24. On the other hand, we do not expect Spritzer’s China operations to turn profitable in FY23F, due to the slower-than-expected recovery in consumer spending in China, intensive competition and high logistical cost. While the management does not have plans to raise ASPs in the near term, we do not discount the possibility of an additional price hikes should costs remain elevated.

Source: PublicInvest Research - 31 May 2023