PETALING JAYA: Spritzer Bhd
intends to invest RM70mil to RM80mil in its bottled water capacity, as it is enjoying improved demand for its bottled water.
This has been driven up by the hot weather, good tourist traffic and water disruptions in certain states.
The company’s production line is operating at 75% capacity after having commissioned two new production lines for 250ml-500ml bottled water, which increased total production capacity to 1.2 billion litres.
With sustained demand forecast, its management plans to set aside RM70mil to RM80mil for capital expenditure in financial year 2024 (FY24) for a new sparkling water production line, to replace old production lines and expand its warehouse capacity from 15,000 to 20,000 pallets, MIDF Research stated in a report following a briefing with the company.
The research house noted Spritzer enjoyed double-digit growth in sparkling water sales over the past two quarters (34.3% quarter-on-quarter (q-o-q) increase in the first quarter of FY24 (1Q24) and a 25.4% q-o-q increase in 4Q23).
The group currently offers two stock keeping units for sparkling water: one-litre bottles (56% of total sales, mainly original flavour) and 400ml bottles (44% of total sales, with 26% original and 17% lemon flavour).
“While sparkling water sales contribute only 2% to 3% of total sales, management aims to expand this segment due to the growing demand and a low base,” MIDF Research said.
It added Spritzer’s exports to markets like Singapore account for 7% to 8% of revenue, but remain a focus due to the better margins earned.
Margins are also supported by lower PET resin price for its bottles and energy savings measures taken.
That aside, Spritzer’s management has warned prices of its products could face an upward bias following the diesel subsidy rationalisation measures, which are expected to be announced shortly, unless its third party logistics providers are exempted.
While the fundamentals of the stock are looking up, MIDF Research stated Spritzer’s share price already reflects much of the potential.
“We believe the recent share price hike has already factored in this optimism. Hence, we remain ‘neutral’ on Spritzer.
“The stock currently trades at a FY24 price earnings (PE) multiple of 14.6 times, above a five-year historical mean PE of 13.6 times,” MIDF Research stated.
It has an unchanged target price of RM2.55 a share on Spritzer.
In a filing with Bursa Malaysia on its 1Q24 financial results, Spritzer said it will continue to invest in its core brands and further automate and enhance its production processes and capacities.
“Our installation and commissioning of two additional production lines in the first quarter of 2024 has certainly put us in a good position to support the current robust demand for bottled water products,” it said.
