• Overview. Spritzer’s 4Q22 earnings increased encouragingly by 39% YoY was mainly due to i) higher revenue on strong domestic sales and price hikes, ii) improving economies of scale, and iii) lower effective tax rate from reinvestment allowances claims on plant and machinery. On a QoQ basis, PBT increased by 8% mainly due to a fall in raw material costs.

• Key highlights. Segmental-wise, FY22 manufacturing and trading segment revenue surged by 31% and 23% YoY respectively thanks to higher average selling price (ASP) and improving sales volumes following effective demand generation efforts as well as full economic reopening.

• Against estimates: Above. FY22 net profit of RM37mn (+52% YoY), made up 109%/110% of our/consensus full year forecast. The positive deviation against our estimate was mainly due to the better-than-expected margin.

• Dividend. Proposed a first and final DPS of 6.25 sen (FY21: 4.5 sen), equivalent to a payout of 35%. This translates into a higher yield of 2.7%.

• Outlook. Spritzer sales growth will be supported by stable bottled water demand given the revival in tourism and increase awareness in healthier drinks as well as hygienic bottled water. Additionally, we expect margin pressure to ease subsequently due to a slowdown in packaging raw material cost. Both Polyethylene Terephthalate (PET) and High-density Polyethylene (HDPE) have tapered down by c.25% and c.15% respectively from its peak in 1H22.

• Earning revision. We adjust higher our earnings forecast for FY23F/FY24F by 9%/7% to account for higher margin due to improvement in operating cost.

• Our call. In tandem with earnings revision, we increase our TP to RM2.60 (from RM2.25) based on 14x PER (in-line with Spritzer’s 5-years average forward PER) pegged to FY23 EPS of 18.6sen. We upgrade our call on Spritzer to a BUY from a HOLD with a total return of 16% including dividend yield. We like Spritzer due to its market leader in bottled drinking water industry as well as continuous automation and enhancement in its production process.

Source: BIMB Securities Research - 28 Feb 2023