Spritzer’s 2QFY23 headline net profit grew by 59% YoY to RM12.2m, driven by the increase in bottled mineral water sales. After adjusting for non-core items, Spritzer’s core net profit came in at RM10.6m. Cumulative 1HFY23 core net profit of RM18.2m was in-line our and consensus estimates, accounting for 52% and 48% of our full year forecast respectively. We are cautious over Spritzer’s operating margins as the increase in electricity cost and strengthening of the USD may lead to a squeeze in margins. Therefore, we maintain our Neutral call and TP of RM1.67 (adjusted post bonus issue), based on 13x PER FY24F EPS.

• 2QFY23 revenue grew 16.5% YoY to RM123.7m. The stronger performance was mainly attributable to higher demand for bottled water products given the increase in economic and tourism activities, further boosted by the adjustments in ASP.

• 2QFY23 core net profit jumped 42.8% YoY to RM10.6m. This was mainly due to greater economies of scale and better product mix, as we gather that there has been an increase in mineral water sales. As such, Spritzer’s PBT margin improved by 3.8 ppts to 13.1% (2QFY22: 9.3%). On the other hand, Spritzer’s operations in China continues to record losses, likely dragged by the lower sales and higher operating expenses.

• Outlook. While we believe that Spritzer will likely benefit from the robust demand for bottled water products given the rising economic and tourism activities, we remain wary over the elevated electricity cost and strengthening of the USD which may erode Spritzer’s operating profit margins. Nevertheless, Spritzer is looking to mitigate the cost pressure by installing solar roofs and energy efficient lines to its new production lines and warehouses. Recall that Spritzer plans to install 2 new production lines in Yong Peng and Taiping, to increase its existing capacity from 1bn to 1.2bn litres per annum. The new lines are expected to start commissioning by 1QFY24. We believe that this expansion will mainly be utilised for Spritzer to grow its presence in Singapore. Meanwhile, we expect China to continue to be loss-making this year, due to weaker-than-expected sales on slower recovery, intensive competition as well as high logistic cost.

Source: PublicInvest Research - 30 Aug 2023