INVESTMENT MERIT

- Handsome gain of 52%.  Since our first Trading Buy recommendation on Spritzer Bhd (“SPRITZR”) when the share price was RM1.16 on 30-Apr-2013, the stock has performed very well with 52% gain so far. In fact, SPRITZR share price has clearly outperformed the benchmark FBMKLCI which has increased by only 3.0% to 1769.21 points.

- Efficient market already priced in expected record high FY13 earnings?  We expect SPRITZR FY13 earnings to be announced by the end of this month. Note that we do expect SPRITZR to deliver good earnings growth YoY of 60% to RM16.9m for FY13E. This should be supported by the increase in sales volume of bottled water and lower PET resin prices. However, we think that the market price may have priced in the good news judging from the increase of more than 50% in share price in the last 2 months.

- Take profit for now.  SPRITZR valuation of 15.0x Trailing 12 Months PER appears to be slightly stretched at this juncture as compared to its 5-year historical average of 10.7x. This is also higher than FBM Small Cap historical PE of 11.5x. Given the high valuation, we think that share price upside should be minimal in the short term as it has exceeded our previous Target Price of RM1.35.

- However, it is still good for long-term investment. Despite our Take Profit recommendation, SPRITZR longterm prospect remains intact. We believe Malaysia population is poised to consume more mineral water on per capita basis due to rising disposable income. In addition, increasing tourist arrival to Malaysia should bode well for mineral water sales too.

SWOT ANALYSIS

- Strengths: Market leader in natural mineral water production.

- Weaknesses: Small market cap.

- Opportunities:  Launch of new products like carbonated fruit flavoured drink/functional water may support revenue growth.

- Threats: Competition from other water bottlers.

TECHNICALS

- Resistance: RM1.81

- Support: RM1.66

- Views: Long-term uptrend, short-term correction Comments: The share price is poised to undergo a shortterm correction due to formation of “Evening Doji” yesterday. Take profit with immediate support rebound at RM1.66 followed by RM1.50.

BUSINESS OVERVIEW

Spritzer Berhad (“SPRITZR”) is involved in the production of natural mineral water, carbonated flavored water, distilled water and drinking water. Spritzer also manufactures and sells Polyethylene Terephthalate (PET) bottles, toothbrushes and plastic household goods. The bottled water manufacturing segment represented over 93% of the group’s total revenue in FY12.

BUSINESS SEGMENTS

Basically, the group has two major business segments namely: 

- Manufacturing:  Includes the production of natural mineral water, carbonated flavoured water, distilled water, drinking water, non-carbonated flavoured water, PET preforms, PET bottles, caps and toothbrushes.

- Trading:  Includes sale of bottled water and other consumer products.

Source: Kenanga