SPRITZER - Beneficiary of low crude oil prices?

SPRITZER (7103) – Beneficiary of low crude oil prices

Background:

Spritzer Berhad or SPRITZR is specialised mainly in manufacturing and distribution of natural mineral water. Other products (on much smaller contribution) include sparkling natural mineral water, distilled drinking water, carbonated fruit flavoured drink, non-carbonated fruit flavoured drink, functional drink, toothbrushes, preforms and packaging bottles. The Company derives its 330-acre site of natural mineral water sources here at Taiping, Perak. Operationally, the Company has two divisions namely Manufacturing (production of mineral water and other products mentioned above) and Trading (sale of bottled water and other consumer products). In FY14 (ending May), Manufacturing division contributed RM31.7m or 99% of the Group’s PBT. The remaining 1% or RM0.8m PBT is from Trading.

Beneficiary of low crude oil prices

Sources say that more than 75% of Spritzer cost is related to its bottling process in which the raw material is Polyethylene Terephthalate (“PET Resin”). PET Resin is a by product of petroleum processing and hence the price is correlated to petroleum. As Brent crude oil has declined significantly in October from USD95/barrel to USD85/barrel, SPRITZR is expected to benefit from lower cost of PET Resin. This should bode well for its FY15 and FY16 earnings going forward.

 

1Q15 earnings jumped 27% YoY to RM6.67m

SPRITZR 1Q15 earnings surged 27% YoY to RM6.67m due to higher sales volume, better average selling price as well as the reduction in packaging material cost. Accordingly, the EPS increased 33% to 4.91 sen per share. It seems likely that SPRITZR is likely to register another good year of earnings growth in FY15 and it should be reasonable to assume 15% earnings growth in EPS to 18.71 sen (against 16.27 sen achieved in FY14).

 

Still cum dividend of 4.0 sen

On 31-Oct-2014, the Company has announced its dividend of 4.0 sen in which its ex-date is on 2-Dec-2014.

Featured in The Edge Weekly recently

In the issue 10 Nov to 16 Nov 2014, The Edge Weekly reported an article with the title “Spritzer maintains earnings momentum” on Page 22. This should be positive to SPRITZR as more investors get to know SPRITZR.

 

Theoretical Target Price of RM2.43

Based on Forward PE of 13x to FY15 estimated EPS of 18.71 sen, SPRITZR theoretical fair value is RM2.43. Comparing this to latest share price of RM2.06, this represents 18% upside.