Investment Highlights

• 9MFY17 results largely within expectation

• Stronger domestic performance as anticipated

• Trading unit in China continued to report losses

• Private placement exercised completed

• Maintain BUY with a revised TP of RM2.53

9MFY17 results largely within expectation. Spritzer 3QF17 earnings came in at RM8.03m. This brings its 9MFY17 earnings to RM18.18m meeting expectations, accounting for 80% of our and consensus’ full year FY17 earnings forecasts. The 3QFY17 earnings improved by +5.66%qoq attributed to the: (i) stronger domestic sales; (ii) stabilising PET prices and; (iii) narrowing losses from the trading unit in China. There is no yoy comparison due to the change in financial year end.

Strong domestic performance in the 3Q as anticipated. Sequentially, revenue and net profit increased by +5.98% and +5.66% respectively. This was mainly attributable to the: (i) higher quantity produced and sold due to the higher demand for bottled water during the SEA Games and ASEAN Para Games which was held last August and September respectively and; (ii) stabilising raw material prices which translated into a marginal increase in cost of sales (+1.0%qoq).

Trading unit in China continued to report losses. China’s operation reported losses of RM1.8m from RM2.4m reported in the previous quarter. The lower loses was due to the lower advertising and promotional activities in conjunction with the cold season in China. Nevertheless, the group will continue its market and brand awareness activities in China to improve its presence in the market. We believe that its China’s operation will only turn profitable in FY19 as the Spritzer brand becomes more establish in the Chinese market.

Private placement exercised completed. The proposed private placement of 27.4m shares to Tasik Puncak Holdings Ltd was completed on the 22nd November 2017. A significant portion of the total proceeds from the placement of RM45.0m out of the RM63.81m will be utilised to construct an automated single-storey warehouse, adjacent to the group’s current facilities in Taiping. This is expected to increase warehousing capacity by 20%. The rest of the proceeds will be used for working capital purposes.

Source: MIDF Research - 29 Nov 2017