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Spritzer - Target RM2.20 (30% upside) - HEAT WAVE to drive mineral water sales.

Publish date: Mon, 15 May 2023, 01:54 PM

1. Malaysia is having heat wave now.

Malaysia is currently experiencing a heatwave, with temperatures reaching up to 37 degrees Celsius in some parts of the country. The heatwave is expected to last until June, and is being caused by a combination of factors, including El Niño and climate change.

The heatwave is having a significant impact on people's lives. Many people are staying indoors during the day to avoid the heat, and businesses are seeing a decline in sales. The heatwave is also making it difficult for farmers to grow crops, and is increasing the risk of forest fires.

The heatwave is a reminder of the challenges posed by climate change. Malaysia is one of the most vulnerable countries in Southeast Asia to the effects of climate change, and the heatwave is just one example of the impacts that are being felt. The government and the people of Malaysia need to take steps to adapt to the changing climate, and to reduce greenhouse gas emissions.

Image from The Star

2. Mineral water sales to increase due to heat wave.

During a heat wave, it is highly likely that the sales of mineral water will go up. Heat waves often lead to increased temperatures and excessive sweating, causing people to become more dehydrated. In such conditions, the demand for bottled water, including mineral water, tends to rise as people seek to stay hydrated and quench their thirst. Sales of bottled water (including mineral water) surge during heat waves as a result.


3. Bonus issue of 1-for-2 completed in June 2023. Spritzer Bhd, Malaysia's largest bottled water producer, has proposed a one-for-two bonus issue of up to 106.44 million shares. The bonus issue, which is expected to be completed by the end of the second quarter of 2023, will increase Spritzer's share capital from 212.88 million shares to 319.31 million shares.

The bonus issue is part of Spritzer's shareholder value enhancement plan, which also includes a dividend payout ratio of at least 50% and an enhanced dividend per share year-on-year. Spritzer's board believes that these initiatives will sustain the company's growth potential and strengthen its position within the bottled water industry.


4. Still expanding.

Spritzer plans to add 2 to 3 production lines in 2024, following the installation of one in the fourth quarter of fiscal year 2022. This will increase the company's annual production capacity by 200 million liters to 1.2 billion liters from 1 billion liters.

5. Target Price at RM2.20. 30% upside.

This is based on 15x PE on FY24 EPS of RM0.147. The 15x PE is at premium of +0.5 standard deviation valuation. It is also at about 20% discount to F&N PE.

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