Spritzer’s 1QFY23 core net profit of RM7.2mn was in-line with our expectation, accounting 20% of full year forecast. Core net profit increased by 8% YoY mainly due to higher sales volume and average selling price (ASP). On QoQ basis, core net profit dropped by 19% mainly due to higher operating cost especially electricity. Moving forward, Spritzer’s FY23 outlook remains intact with sales growth to be supported by stable bottled water demand given the revival in tourism activity and an increase in awareness in healthier drinks as well as hygienic bottled water. Maintain a BUY call with TP of RM2.60 based on 14x PER pegged to FY23 EPS of 18.6sen.

• Within expectations. Spritzer’s 1QFY23 core net profit of RM7.2mn (QoQ: -19%, YoY: +8%) was in-line with our expectation, accounting 20% of full year forecast respectively.

• Dividend. No dividend declared during this quarter.

• QoQ. Spritzer’s 1QFY23 revenue increased by 1% due to an increase in sales volume and ASP. Nevertheless, core net profit dropped by 19% mainly due to higher operating cost especially electricity as a result of Imbalance Cost Passed through (ICPT) rate hike. Margin fell by 3.8 ppts to 6.5% as a result.

• YoY/ YTD. Spritzer’s revenue and core net profit increased by 11% and 8% YoY respectively. The encouraging results were mainly due to i) higher revenue on strong domestic demand and ii) increase in average selling prices. Sale of bottled water and related products segment jumped by 12% YoY due to strong demand and this mitigated the lower sale of plastic packaging materials segments (-8% YoY).

• Outlook. Spritzer sales growth will be supported by stable bottled water demand given the revival in tourism activity and an increase in awareness in healthier drinks as well as hygienic bottled water. On the operating cost aspect, we expect higher electricity prices (increase c.40% YoY in FY23) to be partially offset by lower raw material costs. Both PET and HDPE have decreased by approximately 25% and 9% respectively from their mid-2022 peaks. Additionally, the installation of solar PV in all three manufacturing plants will help to mitigate the impact of higher electricity costs in the long run. Overall, we anticipate a stable EBITDA margin of c.15% in FY23F.

• Our call. We have a BUY call on Spritzer with a TP of RM2.60 based on 14x PER (in-line with Spritzer’s 5- years average forward PER) pegged to FY23 EPS of 18.6sen. We like Spritzer due to i) defensive business nature, ii) most integrated producer of bottled water, with c.40% Malaysia market share, iii) continuous automation initiatives to enhance productivity, and iv) concentrated effort in implementing ESG initiatives.

Source: BIMB Securities Research - 31 May 2023