INVESTMENT HIGHLIGHTS

• 2QFY19 earnings rose by +30.2%yoy to RM6.7m

• This is mainly attributable to the higher volume of bottled water sold and upward revision in average selling price

• Profit margin sustain above 8%

• PET resin prices to remain on the uptrend

• Maintain NEUTRAL with an unchanged TP of RM2.42

Met our and consensus expectations. Spritzer 2QFY19 earnings rose by +30.2%yoy to RM6.7m. This brings its cumulative 1HFY19 earnings to RM15.6m which is within ours and consensus expectations, accounting for 58.9% and 56.3% of full year FY19 earnings forecasts respectively. Historically, the first half of the financial year earnings accounts for about 55.0% of full year earnings.

Double digit growth in 2QFY19 earnings. Revenue for 2QFY19 rose by +13.3%yoy to RM94.8m. This was attributable to the: (i) increased volume of bottled water and; (ii) higher average selling prices. As the higher cost of raw material is passed down to consumers, the rise in cost of sales and other operating expenses during the quarter is at +12.1%yoy in tandem with the growth in revenue. Coupled with the reduction in loss from China’s operation, this resulted in 2QFY19 earnings to grow by double digit.

Target Price. Our target price remains unchanged at RM2.42 per share. This is based on pegging FY20 EPS of 13.8sen against forward PER of 17.5x.

Maintain NEUTRAL. We remain confident that Spritzer will continue to record stable revenue growth going forward driven by its strong brand equity with more than 40% market share in the bottled water market in Malaysia. In addition, we project a solid growth in sales volume underpinned by the: (i) increasing range of quality bottled water catering for various market segments and; (ii) consumer shifts towards a healthier beverage choice as a consequent of the implementation of excise duty on sugary beverages. However, we expect that PET resin prices will continue on an upward trend consistent with the trend of oil prices and weaker Ringgit. To partially alleviate the concern on rising PET resin price, we view that Spritzer’s strategy of manufacturing its own PET preform, bottles and caps would help to keep cost at bay as compared to its peers. All things considered, we are reiterating our NEUTRAL recommendation on Spritzer.

Source: MIDF Research - 28 Aug 2019