KEY INVESTMENT HIGHLIGHTS

• 4QFY19 earnings came in at RM6.5m (+91.9%yoy) leading to full year FY19 earnings of RM31.2m

• This came in within ours and consensus’ expectations

• Earnings was lifted by the reduction in PET resin cost in line with the downtrend in oil price

• The first and final dividend of 4.5sen per share was declared

• Maintain BUY with an unchanged TP of RM2.73

4QFY19 earnings within expectations. Spritzer 4QFY19 earnings nearly doubled to RM6.5m in comparison to the corresponding quarter last year. This brings its full year FY19 earnings to RM31.2m which met ours and consensus expectations, accounting for 95.7% and 98.7% of full year FY19 earnings forecasts respectively.

Lower PET resin cost expanded profit margins. Despite a marginal increase in revenue of +1.8%yoy to RM87.0m, the group’s 4QFY19 earnings was significantly lifted by the: (i) decrease in PET resin cost and; (ii) exemption of sales tax on packaging materials and consumables. Consequently, 4QFY19 net profit margin expanded by about +3.5ppts to 7.5%.

First and final dividend declared. The first and final dividend of 4.5sen per share was declared for FY19 which is within our expectation (vs FY18: 3.5sen).

Impact to earnings. We maintain our forecasts at this juncture as the result is within our estimation.

Target Price. Our target price remains unchanged at RM2.73 per share. This is based on pegging FY20 EPS of 15.6sen against forward PER of 17.5x.

Maintain BUY. 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 commendable 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. Coupled with the favorable PET resin prices, we expect earnings will continue to grow in subsequent quarters. In the long term, 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 maintaining our BUY recommendation on the stock.

Source: MIDF Research - 27 Feb 2020