INVESTMENT HIGHLIGHTS

• FY18 earnings came in at RM24.2m, within our but lagged consensus expectation

• Despite higher revenue achieved, earnings was dragged by the higher operating expenses

• Final dividend declared of 3.5sen per share

• Maintain NEUTRAL with a revised TP of RM2.21

Met our but lagged consensus expectations. Spritzer Berhad (Spritzer)’s 4QFY18 earnings declined by -53.6%yoy to RM3.4m mainly due to the rising cost of sales. This brings its full year FY18 earnings to RM24.2m (a dropped of -4.9%yoy) which is within ours but below consensus expectations, accounting for 96.0% and 90.5% of full year FY18 earnings forecasts respectively.

Revenue for the year rose by +10.8%yoy. Strong revenue growth registered for FY18 rose of +10.8yoy to RM347.7m mainly driven by the increase in volume of bottled water sold. During the year, sales volume increased due to: (i) strong demand for bottled water as a result of hot weather and water rationing in Selangor and; (ii) successful sales campaigns, incentives plan, and special discounts.

Rising operating expenses compressed profit margins. During the year, PET resin costs has increased by +33.3%yoy to an average of RM5,600 p/tonne in FY18 (from RM4,200 p/tonne in FY17). Consequently, the cost of sales rose by +17.0%yoy. In addition, operating expenses rose by +6.0%yoy due to the increase in selling and distribution expenses. These led a compression in net profit margin to 7.0% (from FY17 of 8.1%).

Final dividend declared of 3.5sen per share. The first and final dividend of 3.5 per share was declared. This is lower than FY17 dividend declared of 5.5sen per share.

Impact to earnings. We are revising our FY19F forecast downwards by -2.6% as we expect that operating cost to remain elevated in the near term.

Target Price. We are revising our target price to RM2.21 per share (previously RM2.27). This is based on pegging FY19 EPS of 12.6en against forward PER of 17.5x.

Source: MIDF Research - 27 Feb 2019