SPRITZER: Earnings Exceed Expectations on Cost Efficiency and Volume Growth, Target Price Raised

A recent report by TA Securities highlights robust performance for the company in the first half of fiscal year 2025 (1HFY25), with net profit soaring by 20.1% year-on-year to RM42.4 million. This strong showing significantly surpassed expectations, coming in 11% above TA Securities’ own forecast and 8% higher than consensus estimates, primarily driven by enhanced cost efficiencies and increased sales volume.

Performance Review

The group’s revenue for 1HFY25 climbed 11.1% year-on-year to RM312.7 million. This growth was underpinned by a 9.5% year-on-year increase in the sales volume of bottled water products and a strategic focus on higher-priced offerings. A key factor contributing to the exceptional profit growth was a significant fall in PET resin costs during 1HFY25. This was attributed to lower global prices and a stronger Malaysian Ringgit against the US Dollar, positively impacting the cost of key raw materials.

The favorable cost environment led to a stronger-than-expected EBITDA margin. As a result, TA Securities has revised its EBITDA margin assumption upwards to 21.5% from the original 20%, reflecting the improved operational profitability. The report noted that the average cost of PET resin was RM4.15/kg in 1QFY25, down from RM4.39/kg in 1QFY24.

Future Outlook and Recommendation

Given the strong financial results and improved outlook, TA Securities has maintained its BUY recommendation for the company, simultaneously raising its target price to RM2.04 per share from the previous RM1.90. The revised target price is based on a conservative FY26F price-to-earnings (PE) multiple of 15x, aligning with the company’s five-year average valuation.

Key catalysts identified for future share price performance include the potential for stronger-than-expected earnings and dividends. The investment bank views the company as an attractive proxy to the consumer sector, benefiting from sustained demand drivers such as foreign workers and tourists. Despite the impressive performance, the report highlighted a watchpoint regarding a proposed 5% sales tax on plastic resin by the government. The company is actively seeking an exemption, arguing that resin is a manufacturing input rather than a finished good. Should the exemption not be granted, the company anticipates passing on the increased cost to consumers through adjusted selling prices.