‘SPRITZER SET TO SUSTAIN MARKET-LEADING POSITION’
Future earnings backed by growing export sales, says Kenanga IB
KENANGA Investment Bank Bhd (Kenanga IB) has initiated coverage on Spritzer Bhd, expecting the company to sustain its market-leading position, given the resilient demand for its products.
Kenanga IB said Spritzer’s future earnings would be backed by growing export sales while investments in production and warehousing capabilities should improve output and efficiency.
“The group had ventured into the China and United Kingdom markets as a means of expanding its export market base. The move could potentially serve as a buffer against the weak domestic market, which has been undermined by poor consumer spending postGST (Goods and Services Tax) implementation and unfavourable forex (foreign exchange),” it said in a report yesterday.
Kenanga IB initiated a “market perform” call on Spritzer with a target price of RM2.20 based on the group’s financial year 2018 price earnings ratio of 13 times.
It said while Spritzer’s operations in China were expected to incur high gestation costs in way of high marketing expenses against the heavy competition, effective initiatives could yield promising prospects, given the much larger population base and spending ability, especially in the more developed cities.
Kenanga IB did not anticipate a significant shift in forex exposure in the short term as Singapore remains Spritzer’s largest export market at 50 per cent currently.
For the next three years, the group aims to invest RM60 million to RM80 million to boost the automation of its production lines and key warehousing capabilities, in line with its effort to expand its capacity by 20 per cent.
“The move should improve economies of scale and subsequently lead to margins expansion. The added capacity could also allow for more aggressive trading of products in China in the near future,” it said.
Spritzer has a total production capacity of 650 million litres annually with an utilisation rate of 70 per cent.
Kenanga IB said backed by its three key product brands (Spritzer, Cactus, Summer) with different price ranges, the group was able to tap into the various consumer segments with different spending habits to spread and sustain its market presence as well as market-leading position.