Bottled Up! – Outperform

Life Water Bhd (Life Water) is a leading beverage manufacturer in Sabah, producing drinking water and carbonated drinks. The Group is vertically integrated, engaging in plastic packaging manufacturing and operating its own delivery and distribution centres. Life Water markets its products under several brands, including “K2,” “Sasa,” “Sabah Water,” “2more,” and “TRITONIC,” and also undertakes contract manufacturing for private-label drinking water. We are positive on Life Water’s robust expansion plans, which aim to increase its drinking water production capacity by c.80% to 804m litres/annum over the next two years. We initiate coverage on Life Water with an Outperform rating and a TP of RM0.95 pegging a 12x PER to its CY26F EPS of 7.9sen.

• Leading bottled water manufacturer in Sabah: The Group commands c.11% share of the bottled water market in Malaysia and is recognised as a leading brand in Sabah.
• Robust expansion plans in progress: Life Water plans to increase its drinking water production capacity by c.80% within the next 2 years, from 448m litres/annum to 804m litres/annum.
• Future growth drivers: Poised for growth through geographic expansion into neighbouring markets like Sarawak and Brunei, strengthening its product portfolio, and bolstered by Sabah’s robust tourism recovery.
• Initiate with Outperform call: We are initiating coverage with a target price of RM0.95, derived from a 12x PER to the Group’s CY26F EPS of 7.9 sen, reflecting a c.22% discount compared to its peers’ average.

Key Financial Summary

Company Background

Life Water, through its subsidiaries, primarily manufactures beverages, including drinking water and carbonated drinks. The Group also engages in plastic packaging production and operates delivery and distribution centers. Life Water markets its products under its brands like ‘K2,’ ‘Sasa,’ ‘Sabah Water,’ ‘2more,’ and ‘TRITONIC.’ Additionally, the Group contract manufactures private-label drinking water for various clients. The Group commands c.11% share of the bottled water market in Malaysia and is recognised as a leading brand in Sabah.

Life Water’s Key Management

Business Overview

Life Water is primarily a beverage manufacturer, generating over 99% of its revenue from the production of drinking water and carbonated drinks. Its own brands contributed around 98% of the Group’s revenue between FY21 and FY24. The Group operates 4 beverage manufacturing plants in Sabah with a total annual drinking water production capacity of 448m litres/annum.

Revenue Segmentation by Distribution Channel (FY24)

Growth Drivers

Expanding Annual Capacity

The Group plans to increase its drinking water production capacity by c.80% within the next 2 years, from 448m litres/annum to 804m litres/annum. This expansion will be achieved through the integration of two new production lines, Sandakan Sibuga 1 (2HFY25) and Sandakan Sibuga Plant 2 (FY27F).

Geographic and Product Expansion

The Group is establishing its first distribution centre in Tawau and planning a second in Sandakan. It also aims to expand its footprint into Sarawak and Brunei using an asset-light model by appointing local distributors. On the product front, the company is introducing “Lemony” under its “2more” carbonated drinks range and developing a new line of flavoured fruit drinks called “Mandak”, planned for launch by end-2025.

Acquisition of Twinine Sdn Bhd (TSB)

Life Water has acquired 100% of TSB, a sauces and condiments business, for RM10.5m. This strategic diversification complements its core beverage business and provides a platform for market entry into new segments and geographies where TSB has an established presence. The acquisition was completed in July 2025, with profit contribution anticipated from FY26F.

Increasing Tourism Activities in Sabah

Sabah’s tourism sector’s strong recovery, with arrivals rising 20.4% YoY to 3.14m in 2024, provides a favourable backdrop for Life Water’s sales growth. The sustained growth in tourist inflows bodes well for consumption of fast-moving consumer goods (FMCG), particularly bottled water and ready-to-drink beverages.

Financial Highlights

Revenue

Life Water’s revenue increased at a CAGR of 17.2%, from RM103.5m in FY21 to RM166.5m in FY24. This was driven by the beverage manufacturing segment, with drinking water being the largest contributor (76%-83% of revenue). Sales of drinking water grew at a CAGR of 19.7% due to increased demand from major retail customers.

Profitability

Core net profit increased at a CAGR of 17% from RM17.1m in FY21 to RM20.5m in FY24. GP margin improved from 42.6% in FY22 to 48% in FY24, driven by increased revenue and reduced material costs while maintaining its ASPs. A hike in plastic resin costs in FY22 had previously affected margins.

Gearing

The net gearing ratio rose from 0.25x in FY21 to 0.44x in FY24, consistent with its capital-intensive growth strategy. Despite the increased leverage, the debt coverage ratio remains comfortable at c.10x, and the Group posted strong ROE (>20%) and ROA (>10%) from FY21 to FY24.

Dividend Policy

Life Water has a dividend policy of a minimum of 20% of net profit. The next dividend payout is scheduled for 4QFY25.

Outlook

We remain positive on Life Water’s outlook, supported by robust capacity expansion plans, improving cost dynamics, and new product launches. In May 2025, the Group implemented a c.5-7% increase in ASPs for certain products to mitigate higher labour costs. Meanwhile, PET resin prices have declined by approximately 7% YoY since March 2025, easing raw material cost pressures. We expect Life Water to remain resilient in FY26F, underpinned by sustained demand growth, particularly from the ongoing recovery in tourism across the Sabah region.

ESG

Life Water demonstrates a proactive commitment to ESG principles. Environmentally, it leads in recycling with programs like “K2 Goes Green,” and was the first bottled water producer using rPET in 2022. Socially, it upholds stringent workplace safety and food quality standards (ISO 22000:2018, HACCP, GMP, MeSTI) and prioritizes employee welfare. In governance, it aligns with the Malaysian Code on Corporate Governance (MCCG), with a board comprising 50% independent directors and 30% women representation.

Key Risks

Stiff Competitive Landscape

The company operates in a competitive beverage market. While it has solid competitive advantages, there is a risk of margin compression if it fails to maintain its edge.

Raw Material Price Volatility

The company is exposed to fluctuations in raw material costs, particularly for plastic-based packaging (PET resin) and sugar. While it periodically adjusts prices, an inability to pass on cost increases in a timely manner could affect profitability.

Water Supply Risks

Operations depend on potable water from the Sabah State Water Department. While the company has onsite storage tanks to buffer against short interruptions, prolonged or severe disruptions could adversely impact operations and revenue.

Valuation

We like Life Water for its strong financial track record and leading position in Sabah. Its growth is supported by rising demand for clean water and growing tourism. We are positive on its robust expansion strategy. We are initiating coverage on Life Water with a target price of RM0.95, pegging a 12x PER to its CY26F EPS of 7.9sen, ascribing a c.22% discount to its peers’ average. We believe the discount is justified given Life Water’s relatively small market capitalisation. With a 22.6% upside potential, we initiate coverage with an Outperform rating.

Peers Comparison

Key Financial Data

Income Statement Data (FYE June, RM m)

Balance Sheet Data (FYE June, RM m)

Per Share Data & Ratios

Rating Classification