• We initiate coverage on Spritzer with a fair value of RM2.25. Spritzer is the largest integrated bottled water company in Malaysia with an estimated market share of 40%.
• As a pioneer in the bottled water industry in Malaysia, Spritzer has benefited from first mover advantage and has seen revenue growing by an average 13% pa over the last 10 years.
• The industry landscape has changed in recent years with the emergence of new players competing for market share. Currently, there are 50 licensed domestic natural mineral water sources, with 12 of them owned by Spritzer.
• We are projecting a marginal 2-year CAGR of 6.9% in net profit between FY18F and FY20F, as slower revenue expansion and higher cost impact Spritzer’s profit performance.

Malaysian bottled still water is lucrative

We estimate the market for still water at approximately RM900m with Spritzer controlling a 40% market share. The driving force behind this growth is convenience and shift towards a healthy lifestyle as consumers become more affluent. A growing population base also provides continuous demand for bottled still water especially during extreme weather conditions.

Well-known brand, growing stature

Spritzer has grown its revenue by average 13% pa over the last 10 years, driven by its success in the premiumisation of its products, particularly its mineral water sold under the “Spritzer” brand. In fact, 90% of its revenue is attributed to its water sales. Approx 90% of the water sales go to mineral and drinking water and the remaining 10% to flavoured water. However, we expect revenue growth will soften around 6-7% pa due to market saturation.

Intense competition

The market in Malaysia is currently characterized by increasing competition as private labels and MNCs have aggressively joined the fray. The generic nature of the product makes it difficult to increase selling price without the expense of sales. Although the overall market and revenue is anticipated to continue growing, defending market share will be challenging for Spritzer.

Initiate with a Hold recommendation, fair value RM2.25

We initiate coverage on Spritzer with a HOLD recommendation and RM2.25 TP, derived by applying a PE of 16x on FY19 EPS.

Source: BIMB Securities Research - 28 Dec 2018