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Mercury Securities Sdn Bhd RESULTS REPORT

01 Nov 2012 Market Price: Market Capitalisation: Board: Recommendation: Target Price: Analyst: Edmund Tham BUY RM1.03 Sector: Stock Code/Name: RM0.85 RM111.0m Main Market Consumer Products 7103 / SPRITZR

Spritzer Berhad

KEY FINANCIALS
Key Stock Statistics Earnings/Share (sen) P/E Ratio (x) Dividend/Share (sen) NTA/Share (RM) Book Value/Share (RM) Issued Capital (mil shares) 52-weeks share price (RM) Major Shareholders: .Yee Lee Group/Lim A Heng .Skim Amanah Saham Bumiputera 2013F 10.3 8.2 4.0 1.22 1.22 130.6 0.75 0.99 % 56.9 5.2

RESULTS 1Q/FY13
1Q/ 31 Aug 1Q13 Rev (RMm) 47.7 EBIT (RMm) 4.8 NPAT (RMm) 3.2 EPS (sen) 2.4 *NPAT=net profit after tax 1Q12 41.2 3.0 1.6 1.2 yoy % 15.6 63.5 102.2 102.2 4Q12 46.7 4.2 2.0 1.5 qoq% 2.1 15.2 56.3 56.3

Spritzers positive 1Q/FY13 results (3-month period ended 31st August 2012) were generally within our earlier estimates. Q1 Results within expectations

Ratios Analysis Book Value/Sh. (RM) Earnings/Sh. (sen) Dividend/Sh. (sen) Div. Payout Ratio (%) P/E Ratio (x) P/Book Value (x) Dividend Yield (%) ROE (%) Net Gearing (Cash) (x)

2010 1.05 9.6 3.3 26.0 8.9 0.81 3.9 9.1 0.51

2011 1.09 6.2 3.3 40.3 13.7 0.78 3.9 5.7 0.60

2012 1.15 8.1 4.0 37.0 10.5 0.74 4.7 7.0 0.54

2013F 1.22 10.3 4.0 29.1 8.2 0.70 4.7 8.4 0.54

The group recorded revenue of RM47.7 million during 1Q/FY13, an increase of 15.6% y-o-y. This increase was mainly contributed by the higher sales volume as a result of the continuous strong promotions during the period and also improvements in ASPs (average selling prices). Group NPAT of RM3.2 million was higher by 102.2% y-o-y, attributed mainly to the higher sales volume and increase in sales of higher margin products. Better volumes, ASPs

P&L Analysis (RM mil) FY end: May 31 Revenue Operating Profit Depreciation Interest Expenses Pre-tax Profit (PBT) Effective Tax Rate (%) Net Profit after Tax Operating Margin (%) Pre-tax Margin (%) Net Margin (%)

2010 131.6 16.6 (6.6) (2.3) 14.3 12.4 12.5 12.6 10.9 9.5

2011 147.7 13.9 (8.5) (3.7) 10.2 20.3 8.1 9.4 6.9 5.5

2012 178.2 19.0 (11.0) (4.8) 14.3 25.7 10.6 10.7 8.0 5.9

2013F 198.3 22.4 (12.0) (4.8) 17.6 23.4 13.5 11.3 8.9 6.8

*RM0.50 par value *2013 figures are our estimates

The group's manufacturing segment contributed most of the group revenue. The improved segmental revenue (by 16.1%) was mainly attributable to the increase in both the sales volume and the better ASPs of the bottled water products. The groups Q1 revenue from its trading segment has increased by 9% y-o-y due to increase in sales volumes.

All information, views and advice are given in good faith but without legal responsibility. Mercury Securities Sdn. Bhd. or companies or individuals connected with it may have used research material before publication and may have positions in or may be materially interested in any stocks in the markets mentioned.
This report has been prepared by Mercury Securities Sdn Bhd for purposes of CMDF-Bursa Research Scheme ("CBRS") administered by Bursa Malaysia Berhad and has been compensated to undertake the scheme. Mercury Securities Sdn Bhd has produced this report independent of any influence from CBRS or the subject company. For more information about CBRS and other research reports, please visit Bursa Malaysias website at: http://www.bursamalaysia.com/website/bm/listed_companies/cmdf_bursa_research_scheme/

Mercury Securities Sdn Bhd Comparing q-o-q versus the preceding 4Q/FY12, group 1Q/FY13 revenue was higher by 2.1%. Meanwhile, group NPAT during the quarter was higher by 56.3% versus the preceding quarter. The preceding quarter's profit was impacted by a charge of fair value of employees' share options granted under the groups ESOS, amounting to RM1.0 million.

(Page 2/3) 01 Nov 2012 million litres this year, produced from 15 bottling line facilities (9 lines in Taiping, 2 lines in Shah Alam and 4 lines in Johor). In line with its expansion plan and higher installed capacity, the group will further increase its product range (e.g. carbonated water and water bottles for kids) to cater to the needs of various market segments. Recent developments include the introduction of mini water dispensers (for bottles 5.5-20 litres in capacity) and Hot & Warm mini water dispensers (for bottles 5.5-9.5 litres in capacity). Health benefits The group is also promoting the health benefit of its Spritzer natural mineral water, which is naturally rich in orthosilicic acid (OSA), a trace mineral (silica) associated with numerous health benefits. Recent studies indicate possible benefits of OSA to counter aluminium intake and Alzheimers disease.

OUTLOOK/CORP. UPDATES
Supportive domestic demand On the demand side for Spritzer, the domestic economic environment still appears supportive. This is so due to the fact that most of the groups sales are derived from the domestic market (whereby the group is the market leader). This is despite of the current weak global economic growth rates. The domestic unemployment level is low, while the tourism sector is still growing. Malaysias official government figures expect 2012 GDP growth of 4.5-5.0% and 2013 GDP growth of 4.5-5.5%. Bank Negara Malaysia (BNM) has still maintained its accommodative overnight policy rate (OPR) at 3.0%. The weak external environment (particularly in the US and Europe), has resulted in weak export numbers. Nevertheless, the group faces challenges such as domestic inflation and the volatility of raw material prices. Despite of the weak external environment, the group is also working on improving its sales for the export market. The group has continuous efforts to promote its various brands and with its comprehensive range of bottled water products, the enhancement of its production capacity and the recent upgrading of its warehousing facilities, the sales volumes of its bottled water products is poised to continue to grow. Expansion of product range The group plans to continue focusing on improving its productivity and operational efficiency in order to remain competitive. The groups production capacity is currently 360
Results Report

VALUATION/CONCLUSION
Earlier on, Spritzer had proposed a FY12 DPS (dividend per share) of 3.0 sen, tax exempt (versus its FY11s 2.5 sen DPS, tax exempt). As such, we expect its FY13 DPS to be the same as its FY12 DPS. The date of the groups Annual General Meeting and book closure date for the proposed FY12 dividend will be announced by the group in due course. Spritzer (-1.7% YTD) has underperformed the KLCI (+9.5% YTD) this year. Market conditions have been volatile during the past year, impacted by the Arab Spring uprisings, major Tohoku natural disaster in Japan, sovereign debt issue in Europe and also the debt ceiling issue in the US. As Spritzer is not an especially large market-cap stock, this may put a dampener on its market visibility and trading volume. Revise to Buy Call Based on our forecast of Spritzers FY13 EPS and an estimated P/E of 10 times (within its

This report has been prepared by Mercury Securities Sdn Bhd for purposes of CMDF-Bursa Research Scheme ("CBRS") administered by Bursa Malaysia Berhad and has been compensated to undertake the scheme. Mercury Securities Sdn Bhd has produced this report independent of any influence from CBRS or the subject company. For more information about CBRS and other research reports, please visit Bursa Malaysias website at: http://www.bursamalaysia.com/website/bm/listed_companies/cmdf_bursa_research_scheme/

Mercury Securities Sdn Bhd historical range), we set a FY13-end Target Price (TP) of RM1.03. This TP offers 21.2% upside from its current market price and reflects a P/BV of 0.84 times over its FY13F BV/share. Positive overall results" With Spritzers positive results, we have revised our call on the group to a Buy Call. We are pleased with the groups overall performance in recent quarters. Nevertheless, there are factors affecting its profit margins, particularly raw materials (PET resins) for bottling. Spritzers P/E, P/BV, net gearing, dividend yields and ROEs are all at reasonable levels. In general, as a consumer product-based business, Spritzer also faces possible routine risks such as a slower rate of economic growth, weak product demand growth, foreign exchange fluctuations, rising production costs (raw materials e.g. PET resins for plastic bottling) and stiff competition from other major bottled water manufacturers. Spritzer: Share Price

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Source: NextView

All information, views and advice are given in good faith but without legal responsibility. Mercury Securities Sdn. Bhd. or companies or individuals connected with it may have used research material before publication and may have positions in or may be materially interested in any stocks in the markets mentioned.
This report has been prepared by Mercury Securities Sdn Bhd for purposes of CMDF-Bursa Research Scheme ("CBRS") administered by Bursa Malaysia Berhad and has been compensated to undertake the scheme. Mercury Securities Sdn Bhd has produced this report independent of any influence from CBRS or the subject company. For more information about CBRS and other research reports, please visit Bursa Malaysias website at: http://www.bursamalaysia.com/website/bm/listed_companies/cmdf_bursa_research_scheme/