• Overview. Spritzer’s 1QFY21 revenue increased by 5% qoq to RM76.1m from RM72.6m. This was mainly due to i) increase in sales in China as the company ventured into selling a wider range of sundry goods in China and ii) extensive sales promotion and marketing activities during Chine New Year festival. Additionally, its operating profit increased to RM12.7m (+21% qoq) on the back of lower depreciation as well as better cost management.

• Key highlights. During the quarter, slower yoy revenue growth posted was mainly due to lower sales of bottled water and lower average selling price. Its manufacturing segment dropped by 41% to RM8.1m (1QFY20: RM13.6m) due to the high base level (pre-covid-19 condition). Meanwhile, its PBT grew 51% qoq due to increase in other gains and losses.

• Against estimates: Below. 1QFY21core net profit of RM6.1m (-58% qoq, - 31% yoy) made up 18% and 23% of our and consensus full year forecast. The below than-expected earnings was mainly due to higher-than-expected taxation.

• Outlook. We believe demand for bottled water will grow steadily – keeping with the pace of recovery in the economy and less stricter lockdowns under the current MCO. Malaysians are still allowed to perform outdoor activities, thus aiding in a better demand for its products. The group expects the newly-released plant-based bottle to improve the sustainability of its products. Recently, Spritzer signed SPA to acquire 1,227.6 acres of land for RM76.1m in Perak for future expansion to cater additional mineral water plant. We are positive on this development as the Taiping plant is now operating at 70% utilisation rate hence bigger water capacity is imperative in order for Spritzer to scale up its operations.

• Our call. We like Spritzer for its i) strong foothold in the market (40% of market share) ii) sound business model iii) healthy financials. We resuming our coverage on the stock with BUY recommendation at new TP of RM2.60, derived by applying a PE of 16x on its FY21 EPS of 16 sen.

Source: BIMB Securities Research - 28 May 2021