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.

 

Oriental Food Holdings - Poised To Benefit From Lower Commodity Prices

Background:

Oriental Food Industries Holdings Berhad (OFI) is mainly involved in manufacturing and marketing of snack food and confectioneries (MMSC). Recall that MSCC division contributed RM225m or 99.5% of the Company’s revenue in FY2014 (end March). Also, MMSC division generated RM20m PBT or almost 100% of the Group’s PBT. Another division is property development which contribution to earnings is much smaller.

Some of the Company’s brands include Fudo (cakes), Super Ring (corn based), Jacker (crackers), Rota (potato chips) and Jacker (chocolate wafer).

FY14 earnings jumped 25% to RM15.9m

Key driver behind the earnings jump is the MMSC division which has registered 32% jump in PBT to RM20.2m. The MMSC division sales have increased 9% to RM225m while its PBT margin has improved to 8.9% (from 7.3%). PBT margin increase should be caused by lower material cost such as corn, palm oil and sugar prices.

Strong net cash of RM20.9m or 35 sen per share.

OFI has RM27.6m cash, Long Term Debt RM3.9m and Short Term Debt of RM2.8m. This means net cash of RM20.9m or RM0.35 per share. As the share price is RM3.00, this means 12% of the share price is in cash.

Looking ahead to better FY15 (Year End March)

Conservatively, FY15 earnings should grow 10% to RM17.5m. Key earnings driver should be the lower raw material prices. Globally, corn, palm oil and sugar prices have been lower than last year due to higher supply.

Still cum 3.5 sen dividend with ex-date 29-Aug

This makes its whole year dividend of 9.5 sen or dividend yield of 3.2% historically. For FY15, the Company should be able to deliver better dividend of 10 sen expected due to better earnings prospect.

OFI theoretically worth RM3.21

Based on 11x Fwd. PE to its food business plus the RM20.9m net cash, the Company is worth RM3.21. The 11x Fwd. PE is same to Small Cap Fwd PE. This means potential upside of 7%. Added with the dividend of 10 sen expected or 3.3%, total return is 10.3%.

Items	Value (RM m)
Food business valued at 11x Fwd. PE	192.5
No of shares	60
Value Per Share (RM)	3.21