RITZER: Solid Earnings Performance Recorded, Valuation Concerns Lead to Hold Rating

An investment bank research report indicates a company posted robust financial results, meeting market expectations, with net profit
climbing significantly in the fourth quarter and for the full year. Despite this strong operational and financial performance,
the firm has been downgraded to a “Hold” rating, primarily due to valuation concerns driven by a recent surge in its share price.
The target price remains unchanged at RM3.15, implying a modest upside.

Performance Review

For the fourth quarter of FY25, the company recorded a net profit of RM24.8 million, representing a 4.9% increase quarter-on-quarter.
This marked a consistent growth trend, with net earnings improving sequentially throughout FY25. On a year-over-year basis,
the net profit for the full FY25 surged by an impressive 27.6% to RM90.8 million. This full-year performance was in line with
both the investment bank’s forecast and market consensus. Furthermore, the company declared a gross dividend per share
(DPS) of 5 sen for 4QFY25, an increase from 4 sen in FY24, with a projected gross DPS of 5.5 sen for FY26F, offering a yield of 1.9%.

Key Drivers and Efficiencies

The strong financial results were largely underpinned by several key factors. Significant cost efficiencies, particularly from
lower PET resin prices, played a crucial role. The report notes that average PET resin prices declined to RM4.08/kg in 9MFY25
from RM4.46/kg in 9MFY24, with PET resin accounting for 30% to 40% of production costs. This contributed to a notable
improvement in the company’s EBITDA margin, which expanded to 23.6% in FY25 from 19.5% in FY24. Alongside cost
management, higher sales volumes of mineral water products also boosted revenue, with an estimated 12% increase in sales
volume for FY25, achieved without raising selling prices. The investment bank anticipates PET resin costs will remain favorable
due to a strong Malaysian Ringgit and weak crude oil prices.

Valuation and Outlook

Despite the positive operational performance and robust sales momentum, the investment bank revised its recommendation
from “Buy” to “Hold.” This decision stems from the company’s demanding valuation, as its share price has appreciated,
leading to higher price-to-earnings (PE) ratios of 17.9x for FY26F and 16.7x for FY27F earnings. The unchanged target price
of RM3.15 per share is based on a FY27F PE of 18x, which is one standard deviation above its five-year average PE of 15x.
A premium was applied to account for the company’s dominant market share of 40% in the bottled water industry in Peninsular Malaysia.

Looking ahead, the investment bank projects a net profit growth of 13.5% in FY26F, supported by ongoing margin enhancements
and robust sales volume growth for mineral water products. The company’s strong brand presence and continued demand
are expected to sustain its performance.

Identified Risks

Key risks highlighted in the report include a potential fall in sales volume and an increase in PET resin costs, which could
impact profitability given its significant contribution to production expenses.