KUALA LUMPUR (June 27): PublicInvest Research, which initiated coverage of Spritzer Bhd with a “neutral” call, said it remained 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% by 2022. to 2030, PublicInvest said in a note.
As such, the research firm predicts that Spritzer sales will grow at a three-year CAGR of 9%.
“In contrast, we remain cautious on Spritzer’s margins due to soaring raw material costs. Additionally, we expect Spritzer’s operations in China to remain a drag in the fiscal year ending December 31, 2022 (FY22) through FY24, given lockdown measures and intense competition.
“As a result, we expect FY22 earnings to fall 5% year-over-year before resuming its growth trajectory to 14%-21% in FY23-24,” said the research firm.
PublicInvest said it values Spritzer for its positioning as Malaysia’s largest and most integrated bottled water producer, with an estimated market share of 40%.
“We are initiating a hedge of Spritzer with a ‘neutral’ rating and a target price (TP) of RM1.98, based on an average multiple of PER (price-earnings ratio) of 15 times pegged to its FY23 EPS (earnings per stock ).
“We believe the assigned valuation is fair as it is close to Spritzer’s historical five-year forward P/E average, which is also about a 20% discount to the industry average. We believe this is justifiable given Spritzer’s smaller market capitalization,” he added.
For the first quarter ended March 31, 2022, Spritzer’s net profit increased to RM6.65 million from RM6.06 million for the same quarter last year amid higher sales. Revenue rose to RM98.82 million from RM76.05 million previously, on the back of increased demand after the easing of Covid-19 restrictions.
According Bloomberg The data.
Spritzer shares last traded at RM1.89, giving the company a market capitalization of RM396.89 million.