Spritzr- a not-so fizzy stock

Background

Spritzer Bhd ('Spritzr') is involved in the manufacturing and distribution of natural mineral water, sparkling natural mineral water, distilled drinking water, carbonated fruit flavoured water, carbonated fruit flavour isotonic water, teas, toothbrushes, preforms and packaging bottles.

Recent Financial Results

Spritzr has announced its results for QE31/8/2009. Its net profit increased by 54% q-o-q or 29% y-o-y to RM3.1 million while turnover increased 11% both q-o-q & y-o-y to RM31.2 million.


Table 1: Spritzr's 8 quarterly results

Over the past 13 quarters, Spritzr's quarterly turnover has risen from RM19 million to RM31 million. Quarterly net profit has risen slowly from about RM1.0 million to above RM3.0 million. Due to the increased demand, Spritzr has announced plan to "set up a new bottling plant in Shah Alam to facilitate its supply of bottled water to Klang valley and central Malaysia. The new plant is expected to commence operations in the fourth quarter of the current financial year. The strategic location of this plant will enable the Group to reduce delivery cost and boost its sales tremendously". Spritzr has already signed a S&P agreement to acquire a piece of land in Shah Alam costing RM32.5 million for this purpose.


Chart 1: Spritzr's 13 quarterly results

Valuation

Spritzr (clsoed at RM0.685 yesterday) is now trading at a trailing PE of 10 times (based on last 4 quarterly EPS of 6.8 sen). However, Spritzr should command a higher PE multiple in view of its steady growth rate & low base. Assuming we used a PE multiple of 12 times, Spritzr's fair value is about 82 sen.

Technical Outlook

Spritzr has a strong price run-up after breaking above its downtrend line at RM0.45 in early 2008. In a matter of 15 months, it gained 66% to reach its July 2009 high of RM0.75. The share price may pull back after this rally. A good entry level is about RM0.60-65.


Chart 2: Spritzr's daily chart as at Sept 28, 2009 (Source: Tradesignum)

Conclusion

Based on steady financial performance & positive technical outlook, Spritzr is a good stock for long-term investing. Accumulate on weakness at RM0.60-65 level.