• Spritzer’s 1QFY19 net profit of RM7.7m increased 14% yoy on stronger sales and reduction in China operation costs. Overall, 1Q19 core profit were within our forecasts but slightly ahead of consensus at 27% and 29% respectively.

• Revenue for the quarter increased by 15% yoy to RM95m coming in from positive sales due partly to CNY festive season purchase.

• EBITDA margin fell 1.3ppts to 14.4% due to increase in selling and distribution expenses despite positive revenue performance.

• We maintain Hold recommendation with unchanged TP of RM2.25 by applying a PE of 16x on FY19 EPS.

Profit lifted by increase in bottled water sales

Spritzer’s 1QFY19 revenue increased 15% to RM95m yoy attributed to the increase in average selling price and increase in sales. Meanwhile, PBT and net profit rose to RM10m (+5% yoy) and RM7.7m (+14% yoy) respectively. The increase in profitability is attributed to better sales performance and reduction in overhead costs of its China operations. However, EBITDA margin decreased to 14.4% (-1.3% yoy) due to higher selling and distribution expenses. Overall, net profit registered is in-line with our and above consensus estimates at 27% and 29% respectively.

Higher net profit growth QoQ

On qoq basis, revenue increased by 11% due to better sales performance and customers stocking up in anticipation of Chinese New Year festive period. Meanwhile, PBT saw a surge of 136% which is also attributed to lower cost in raw and packaging materials. Consequently, net profit rose by 128% to RM7.7m with net margin expanded to 8.1% (+4.1 ppts).

Moderate growth outlook despite cost pressure

Spritzer’s 1QFY19 revenue offered a positive outlook which continues to cement their premium branding despite the generic nature of the product. Although the overall market for bottled mineral/drinking water is anticipated to continue growing, we expect Spritzer’s revenue growth from here will soften to around 6-7% pa (from near 11% yoy in FY18) due to market saturation. Further, increase in material cost, namely raw materials and packaging cost, may impact Spritzer’s future earnings. On the positive side however, the strengthening of ringgit may partly mitigate the cost pressure.

Maintain Hold with TP of RM2.25

We maintain our Hold recommendation with an unchanged TP at RM2.25 which is derived by applying a PE multiple of 16x on its FY19 EPS of 14 sen.

Source: BIMB Securities Research - 31 May 2019