Spritzer’s 3QFY23 core net profit jumped 49.3% YoY to RM17.1m, mainly attributable to the higher sales volume and lower operating cost, bringing the YTD core net profit to RM36.3m. Cumulative 9MFY23 earnings were above our and consensus estimates, accounting for 103% and 96% respectively. The discrepancy in our forecast was mainly due to the lower-than-expected operating costs. Therefore, we raise our earnings estimates by 14-35% for FY23-25F, as we lower our cost assumptions. We are optimistic on Spritzer’s future outlook as we believe that the resumption in economic and tourism activities will continue to drive bottled water sales. As such, we upgrade our call on Spritzer from Neutral to Outperform, with a higher TP of RM2.08 based on 13x PER FY24 EPS.

• 3QFY23 revenue rose 10.8% YoY to RM132.6m, due to an increase in the sales volume of bottled water from the manufacturing segment. Additionally, the increase in the average selling prices of its bottled water has contributed towards this boost in revenue.

• 3QFY23 core net profit grew 49.3% YoY to RM17.1m, on lower raw material costs, greater economies of scale as well as better product mix. We understand the group is operating at 70% utilization rate, which is close to its optimal capacity. As a result, Spritzer saw an expansion in its operating profit margin, increasing by 7ppts to 17.7% (3QFY23: 10.7%). Spritzer’s China operations recorded narrower losses of RM0.3m due to lower operating expenses.

• Outlook. We expect Spritzer to post higher earnings going forward, underpinned by stronger bottled water demand and an increase in production volume as the group is operating near its optimal capacity (from 1bn to 1.2bn litres per annum). The stronger bottled water demand is mainly premised on recovery in economic activities and return of international tourists especially given the recent announcement on visa free travel for visitors from China and India. Meanwhile, we understand that Spritzer is looking to grow its presence in Singapore, which we believe it will be fulfilled by the new production line and warehouse in Yong Peng. In addition, group continues to focus on cost optimisation activities, by installing solar roofs and energy efficient lines to mitigate the impact from increased electricity costs. As PET resin prices had eased from its peak in 1QCY23 by c.12%, we believe that it should help to offset the impact of stronger USD.

Source: PublicInvest Research - 28 Nov 2023