• Overview. Spritzer’ 1QFY22 revenue increased to RM98.8m (+29.9% yoy) attributed to higher sales volume as a result of an increase in demand from the opening of the economy as well as relaxation of movement restrictions. Nevertheless, net profit of RM6.6m only increased by 9.7% yoy impacted by higher manufacturing expenses caused by the increase in packaging and raw materials prices as well as higher selling and distribution expenses. On a qoq basis, net profit dropped by -18% qoq mainly due to higher overall operating cost and higher effective tax rate of 28.7% (+4 ppts). Overall net margin fell to 6.7% (-1.3 ppts qoq, -1.2 ppts yoy).

• Key highlights. On the segmental breakdown, the manufacturing segment PBT jumped by 18% yoy to RM9.5m mainly due to increase in sales volume. However, the trading segment loss increased 20% yoy to a loss of RM391k attributed to a decrease in sales and increase in operating expenses in China’s market as a consequence of the country’s zero Covid-19 policy lockdowns.

• Against estimates: Inline. Overall, 1QFY22 earnings of RM6.6m were in-line with our full-year forecast at 23.5%.

• Outlook. We anticipate demand for Spritzer bottled water likely to increase in tandem with the country’s economic recovery moving into the endemic phase as well as improvement in the HORECA business channel. Nevertheless, we remain cautious on the likelihood of margin erosion due to higher input cost and inflationary pressures.

• Our call. We made no changes to our forecast at this juncture. Reiterate our BUY call with an unchanged TP of RM2.60 based on PER of 19x pegged to FY22 EPS of 13.5 sen. Spritzer’s balance sheet remains healthy with net cash of RM16m as at 1QFY22. We like Spritzer due to its market leader position in the bottled drinking water segment as well as continuous automation and enhancement in its production process.

Source: BIMB Securities Research - 31 May 2022