YEE LEE CORP BHD
By PublicInvest Research Outperform Target price: RM2.58
YEE Lee announced that it had acquired 654,800 shares in Spritzer for a total consideration of RM1.54mil.
This represents a 0.3% increase in Yee Lee’s stake in Spritzer to 29.19% upon completion.
The shares were acquired at RM2.35 per share through an off-market transaction with Datuk Lim Kok Boon, a director and shareholder of Spritzer.
He is also a brother of Datuk Lim A Heng @ Lim Kok Cheong, the non-independent executive chairman of Yee Lee.
PublicInvest Research deems the price reasonable, representing a 0.4% premium to the share’s five-day volume weighted average price of RM2.34 up until Aug 29, 2018.
“Based on our estimation, this would have a minimal impact to earnings forecast at 0.1%, with marginal 0.4% (RM0.01 in value) positive increase to our target price.
“Thus, we keep our earnings estimates unchanged at this juncture.
“We are ‘positive’ over the shares acquisition, as Yee Lee’s position in Spritzer has been beneficial to the group.
“This is reflected in the growing profit contributions and long-standing compatibility in their trading relationship,” said PublicInvest Research.
Apart from owning a stake in Spritzer, Yee Lee is also a distributor of Spritzer’s products.
Spritzer is currently the largest bottled water producer in Malaysia with about 40% market share.
Its product range of natural mineral water, drinking water and other beverages including carbonated fruit flavoured drink and non-carbonated fruit flavoured drink fits well in Yee Lee’s trading business, which markets and distributes mostly food and beverages as well as household products.
Going forward, Spritzer is building a new automated warehouse in its Taiping plant.
With an allocation of RM45mil, the automated warehouse is expected to accommodate higher volume of production and sales when it is completed, targeted by end-2019.
On top of enhancing production capability and capacity, Spritzer will continue to focus on its advertising and promotional efforts to drive sales of bottled water products in both Malaysia and Guangzhou, China.
Its business remains domestic-driven, with export sales making up less than 10% of Spritzer’s revenue.
“Our ‘outperform’ rating is maintained with target price of RM2.58 unchanged, premised on FY19 sum-of-parts valuation.
“We continue to see growth potential in Yee Lee, coming from improved sales of brands under its distributorship, innovative marketing activities, introduction of new product range and exploring other trading opportunities,” said PublicInvest Research.