SPRITZER: Strong Earnings Momentum Continues Amidst Favorable Costs and Demand
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading investment bank has maintained its “BUY” recommendation, raising the target price, reflecting continued robust performance driven by healthy demand and significant cost efficiencies. The company’s net profit surged in the third quarter of fiscal year 2025 (3QFY25) and for the nine-month period (9MFY25), significantly surpassing analyst expectations.
Performance Review
The company reported a 3.9% quarter-on-quarter increase in net profit to RM23.6 million in 3QFY25. For the nine-month period (9MFY25), net profit climbed by a substantial 25.9% year-on-year to RM66 million. This impressive performance notably exceeded the investment bank’s forecast by 9% and consensus estimates by 7%. Revenue for 9MFY25 also saw a healthy increase of 12.9% year-on-year, reaching RM482.6 million, largely propelled by strong sales volume growth, estimated at 10% year-on-year for the period, and an increased contribution from higher value-added products. The branded water segment remained a key driver, accounting for over 80% of revenue in the first half of FY25.
Operational Efficiency and Cost Savings
A key factor contributing to the impressive results was the expansion of the company’s EBITDA margin, which rose to 23.6% in 9MFY25, exceeding the bank’s 21.5% forecast. This significant improvement is primarily attributed to lower PET resin costs. The report highlights a fall in crude oil prices combined with a strong Malaysian Ringgit against the US Dollar, which kept resin costs down. Additionally, the company benefited from a recent Sales and Service Tax (SST) exemption for resin purchases, further enhancing profitability. Average resin prices dropped to RM4.20/kg in 1HFY25 from RM4.45/kg in 1HFY24.
Future Outlook
The outlook remains positive, with expectations of sustained demand for bottled water products. The upcoming “Visit Malaysia Year 2026F” is projected to significantly boost tourist arrivals, with a target of 47 million visitors, thereby underpinning demand. In light of the stronger-than-expected EBITDA margins, the investment bank has revised its net earnings forecasts upwards for FY25F and FY26F by 11.1% and 19.7% respectively.
Analyst Rating and Target Price
The investment bank has reaffirmed its “BUY” recommendation and raised its target price to RM3.15 per share, up from the previous RM2.04. This new target price is based on an increased FY27F price-to-earnings (PE) assumption of 18x, which is one standard deviation above the five-year average of 15x. The premium applied reflects the company’s dominant market share of 40% in the Peninsular Malaysian bottled water industry and its unique mineral water reserves.
