Spritzer Targets Expansion But Also Must Manage Costs

Largest water producer in Malaysia, Spritzer remains the largest with a target production capacity of 1.2b litres per annum by 2024, up from 1b litres as of 4QFY23. The group possesses a 430-acre pristine land bank with three water plants located across Taiping (Perak), Shah Alam (Selangor), and Yong Peng (Johor).

Looking at its plans for 2024, the group completed upgrade of its ASRS warehouse and the capacity increased from 15k pallets to 20k pallets post upgrade. This was supported by more than 30 AGVs that reduce reliance on labor, improve inventory management, lower forklift accidents, and increase efficiency. Moving forward, the group targets to continue upgrading the pallets of the ASRS warehouse to cater to the rising demand for Spritzer’s products.

Higher operating costs with a focus on capturing market share.
Spritzer targets to expand the distribution channel from the current greater petrol kiosks contributor to the HoReCa segment in Malaysia. The group also targets to expand the product portfolio to raise production capacity. Despite inflationary pressure expected in FY24, mainly due to the spillover effect of higher service tax and potential rollout of targeted subsidies for fuel that raise operating costs, the group does not expect any price adjustments for now as Spritzer prefer to capture greater
volume to compensate for lower margins. Nevertheless, MIDF says it gathers that the prices of staple products are closely scrutinized by the government in on effort to control the domestic cost of living.

Moving forward, Spritzer targets to improve penetration of the bottled water market in Singapore. Note that the current export sales contributed 7-8%, with Singapore being the main contributor followed by Brunei. This is due in part to Singapore and Brunei being adjacent nations to Malaysia, which lower logistics and shipping costs, which allows the Spritzer to remain competitive in the market.

The house maintains Neutral with an unchanged TP of RM2.08. Post analyst briefing, MIDF said it made no changes to its earnings forecast for FY24-25F. Going forward, MIDF anticipates that demand for Spritzer’s bottled water will remain healthy owing to buoyant tourist traffic, higher out-of-home activities, hot weather conditions (likely to continue in 1HCY24), and the normalization of business events and activities.

However, it said it is worried about the possibility for inflationary pressure on operational expenditures caused by cost pass-through from logistics and telco provider as a result of the higher services tax. The stock is currently trading at its FY24F PER of 12.5x, which is reasonable given its historical 3-year mean PER of 12.2x.

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