We believe that Spritzer's net profit growth of 6.7% for FY25F is still decent after a strong 31.8% surge in FY24F. The group's FY25F earnings growth is envisaged to be underpinned by robust sales volume of mineral water. Recently, the group proposed a 1-for-1 bonus issue. We maintain BUY with an unchanged target price of RM3.54/share. Our target price is based on a FY26F PE of 15x, which was the average in the past five years.

• Valuations are undemanding. Spritzer is currently trading at an undemanding FY25F PE of 13x compared to the simple average of 16x of the consumer sector in Malaysia. Life Water, which is based in Sabah, is presently trading at CY25F PE of 12x and CY26F PE of 11x. We believe that Spritzer's valuations are higher due to its brand recognition and extensive reach in Peninsular Malaysia.
• Sales volume growth of 10% in FY25F. This comes after a robust 16% expansion in FY24F. Spritzer sells its products via distributors and wholesalers. They in turn, sell to customers in modern (e.g hypermarkets) and general trade, convenient stores and petrol stations. Sales are also stronger during hot spells and water disruptions.
• PET costs to remain stable in FY25F. PET prices usually track crude oil prices. Bloomberg consensus forecast an average Brent oil price of US$76/barrel in FY25F vs. US$81/barrel in FY24F. Hence, we believe that PET costs would remain stable in FY25F. Spritzer's average PET cost was RM4.46/kg in 9MFY24 vs. RM4.53/kg in 9MFY23. Packaging accounts for 70% of production costs.
• Going forward, China unit is envisaged to turn around. The China unit is expected to swing into the black in FY25F or FY26F from small losses in FY24F. The earnings turnaround is envisaged to be underpinned by higher sales volume. The division is in the red currently as the Chinese market is competitive.

Source: AmInvest Research - 10 Dec 2024