KUALA LUMPUR (June 27): PublicInvest Research, which has initiated coverage of Spritzer Bhd with a "neutral" call, said it remains cautious about the group's profit margins due to a rise in resin prices.
Citing data from Grand View Research, the global water market (spring water, purified water, mineral water, sparkling water and others) is expected to grow at a compound annual growth rate (CAGR) of 6.7% from 2022 to 2030, said PublicInvest in a note.
As such, the research firm forecasts Spritzer’s sales to grow at a three-year CAGR of 9%.
“On the other hand, we remain cautious about Spritzer’s margins on the back of a spike in raw material costs. Additionally, we expect Spritzer’s China operations to remain a drag in the financial year ending Dec 31, 2022 (FY22) to FY24, given the lockdown measures and intense competition.
“Therefore, we project FY22 earnings to fall by 5% year-on-year before resuming its growth trajectory at 14%-21% in FY23-24,” said the research firm.
PublicInvest said it likes Spritzer for its positioning as the largest, most integrated bottled water producer in Malaysia, with an estimated market share of 40%.
“We are initiating coverage of Spritzer with a 'neutral’ rating and a target price (TP) of RM1.98, based on an average PER (price-earnings-ratio) multiple of 15 times pegged at its FY23 EPS (earnings per share).
“We believe the valuation ascribed is fair as it is close to Spritzer’s five-year historical average forward PER, which also represents an about 20% discount to the industry’s average. We believe this is justifiable given Spritzer’s smaller market capitalisation,” it added.
For the first quarter ended March 31, 2022, Spritzer’s net profit increased to RM6.65 million, compared with RM6.06 million for the same quarter last year amid higher sales. Revenue grew to RM98.82 million from RM76.05 million previously driven by increased demand after relaxation of Covid-19 restrictions.
There are two "buy" calls and one "hold" call on the stock, with TPs of RM1.98, RM2.57 and RM2.60 respectively, according to Bloomberg data.
Shares in Spritzer were last traded at RM1.89, giving the company a market capitalisation of RM396.89 million.