• Overview. Spritzer’s 2Q22 earnings increased encouragingly by 15% QoQ and 87% YoY attributed to strong sales revenue as a result of i) higher sales volume driven by transition to endemic phase and the reopening of international borders, ii) higher average selling prices and iii) lower effective tax rate of 22.5% (-6.1 ppts QoQ, -3 ppts YoY).

• Key highlights. Spritzer’s margins remain under pressure due to higher operating costs especially the resin raw materials prices. We remain cautious on insufficient average selling prices (ASP) adjustment to offset the rising input costs in order to defend market share. In addition, we gather the trend towards lower margin drinking water from mineral water as consumers switch to cheaper option due inflationary pressure.

• Against estimates: Inline. 1H22 net profit of RM14.3mn, making up 57%/53% of our/ consensus full year forecast. We deem this within our estimate in view of slower 2H22 earnings due to inflationary pressures.

• Outlook. Despite near-term challenges, long term sales will recover given the full reopening of the economy, improvement in the HORECA business channel, as well as an increase in consumer awareness of healthier drinks and hygienic bottled water. While we expect a stable top-line growth, we remain cautious on margin pressure due to higher input costs particularly with global inflationary environment.

• Our call. We made no changes to our forecast. Reiterate a HOLD call with an unchanged TP of RM1.95 based on PER 14x pegged at FY23 EPS of 13.9 sen. We estimate a 4.2sen DPS for FYE22 (payout of c.35%), translating into a dividend yield of 2.1%.

Source: BIMB Securities Research - 29 Aug 2022