INVESTMENT HIGHLIGHTS

• Market leader with over 40% market share in Malaysia

• Increase production by 20% in next three years

• Undisrupted profit growth for the past 5 years

• Initiate with Buy and TP of RM2.83

Business Overview:

Spritzer is a market leader in bottled drinking and mineral water with an annual production capacity of 650 million litres from 15 production lines in three of its plants in Taiping, Shah Alam and Yong Peng. Brands sold by the company include Spritzer, Cactus, Summer, Tinge and Pop.

Investment Theses:

1. Strong brand with over 40% market share in Malaysia.???????Spritzer is a household name in Malaysia with a market share of over 40% for bottled water and over 50% for mineral water. The mineral water to drinking water ratio it produces is 70:30. The company has won 69 awards in the past 27 years.
2. Increase production by 15-20% in next three years. The company could further increase its production capacity by another 15% in the next two to three years through enhancements on its water production lines. Moreover, management plans to build a new fully automated warehouse in its Taiping plant to meet the increase in sales and production.
3. Undisrupted profit growth for the past 5 years. Thanks to its dominant market position, Spritzer has been charting undisrupted growth in the last five years. Its 2012 to 2016 net profit CAGR was 30%. We expect the company to continue its upward climb in FY18 as it solidifies its existing market share while it expands into new markets.

Valuation:

Initiate with BUY recommendation and target price of RM2.83 based on 17x FY18F EPS of 16.6 sen. The PER of 17x is a 35% discount to the average PER of other beverage companies listed on Bursa such as Fraser and Neaves, Dutch Lady and Nestle. The discount ascribed is due to Spritzer’s smaller market cap. We like Spritzer for its i) resilient earnings due to its defensive business model, ii) strong position as market leader in Malaysia’s bottled water industry and iii) strong balance sheet with net cash position as of end-FY16.

Source: MIDF Research - 2 Jun 2017