INVESTMENT HIGHLIGHTS

• Private placement to raise RM63.81m

• The subscriber is Tasik Puncak, an SPV for a PE fund

• Proceeds to be used to build an automated warehouse

• The new warehouse is expected to improve group’s productivity and efficiency

• Maintain BUY with a unchanged TP of RM2.83 (explacement RM2.46)

Private placement to raise RM63.81m. Spritzer announced a private placement exercise of 15% or nearly 27,387,225 units of shares at issue price of RM2.33 per placement share to Tasik Puncak Holdings Ltd. Currently, its issued shares stands at 182,581,502 units. The placement will increase the issued shares to 209,968,727 share units. Through the private placement excercise, Spritzer will be raising a total fund worth about RM63.81m. The exercise is expected to be completed by 4Q17.

The subscriber is Tasik Puncak, an SPV for a PE fund. Tasik Puncak Holdings Ltd will be holding the shares on behalf of Tasik Puncak LP, which was established as a special-purpose vehicle for Dymon Asia Private Equity (S.E. Asia) Ltd (DAPE). DAPE is managed by Dymon Asia Capital (Singapore) Pte. Ltd., a Singapore-based fund manager which manages several alternative investment funds with aggregate notional assets under management and committed capital of approximately USD5.3b as at 1 September 2017. Tasik Puncak currently does not hold any shares in Spritzer and will emerge as a 13.04% substantial shareholder upon completion of the private placement.

Proceeds to be used to build an automated warehouse. The bulk of the proceeds raised from the exercise of RM45.0m will be used for the construction of an automated single-storey warehouse which will increase warehousing capacity. It will be constructed on the land currently owned by the Spritzer. The warehouse is expected to have a built-up area of about 105,820sqft and will be located adjacent to the group’s current facilities in Taiping. The remaining balance of the proceeds will be used for working capital requirement.

Impact to earnings. The exercise is not expected to have any material effect on the earnings of Spritzer for FY17.

The new warehouse is expected to improve group’s productivity and efficiency. The newly automated warehouse is necessary to meet the increase in sales and production. We believe that the new warehouse could help to boost its production efficiency due to the easing of the current bottleneck at its current warehouse in Taiping. Furthermore, as the company could further increase its production capacity by another 20% in the next two to three years through enhancements on its water production lines, the construction of the warehouse appear timely.

Maintain BUY recommendation with an unchanged TP of RM2.83. We maintain our FY17F and FY18F net profit estimates of RM22.7m and RM30.4m respectively. Our TP ex-private placement is RM2.46 based on EPS18 of 14.48sen pegging to a PER of 17x. We continue to 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 - 25 Sept 2017