KEY INVESTMENT HIGHLIGHTS

• 9MFY20 earnings exceeded expectation

• Earnings for the period declined by 14.3%yoy to RM21.2m while revenue fell by 17.9%yoy to RM235.8m

• 3QFY20 net profit jumped by 13.7%yoy to RM10.4m although revenue slipped by 9.1%yoy to RM88.6m

• Earnings revised by +19.6% for FY20E

• Maintain TRADING BUY with an unchanged TP of RM2.34

9MFY20 earnings exceeded expectation. Spritzer’s net profit the nine-month period made up 94% of our full year estimates. The aboveexpectation earnings can be attributed to lower-than-expected operating expenses. No dividend was announced during the quarter.

Earnings for the period declined by -14.3%yoy to RM21.2m while revenue fell by -17.9%yoy to RM235.8m. Sales for the period was negatively affected by the pandemic as more people stayed at home, thus reducing the demand for bottled water. Notably, sales from the hotel, restaurant and café channels (HORECA) were badly impacted particularly during the Movement Control Order (MCO) period in 2QFY20.

3QFY20 net profit jumped by +13.7%yoy to RM10.4m although revenue slipped by -9.1%yoy to RM88.6m. Results for the quarter surprised on the upside. This can be attributed to low raw material for packaging, lower sales and marketing expenditure as well as other operating expenses. Notably, costs of sales declined by 14%yoy, which was steeper than the decrease in sales. Due to savings from packaging input costs as well as lower sales and distribution expenses, net profit improved by +13.7%yoy despite lower sales.

Earnings revised by +19.6% for FY20E. While we are positively surprised by the 3Q results, we expect that 4Q results may likely be softer comparatively. We believe the reintroduction of CMCO is likely to dampen demand for bottled water again. The HORECA segment is likely to be negatively impacted by the CMCO as well. Besides, we also think that sales in 3Q might be supported by a spike in demand due to a major unscheduled water disruption that affected millions in the Klang Valley. Meanwhile, we leave our FY21F estimates unchanged.

Maintain TRADING BUY with an unchanged TP of RM2.34. Our TP is derived from valuation of 17.5x PER pegged to FY21F EPS of 12.3sen. At current price, PER is estimated at 14.5x for FY20E and 13.8x for FY21F, which is rather attractive for a consumer staple company. This is supported by its strong cashpile of RM26.9m alongside other investments of RM60.8m. On top of that, it is trading below its net asset per share of RM2.04.Dividend yield is estimated at 2.2%

Source: MIDF Research - 26 Nov 2020