Business Description
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| Spritzer Berhad | |
| Incorporation Date | Year 1989 |
| Listing Date | Year 2000 |
| Market Cap | MYR422.74M |
| Industry/Sector | Food & Beverages/Bottled Water |
| No. of Employees | 800 |
| Type of Company | Stalwart |
Spritzer is largest bottled water producer in Malaysia, with more than 40% market share, an annual production capacity of about 600 millions litres of bottled water. Spritzer is a fully integrated water bottling industry, now comprises of subsidiaries which are involved in the manufacturing and distribution of: Natural mineral water, Sparkling natural mineral water, Distilled drinking water, Carbonated fruit flavored drink, Non-carbonated fruit flavored drink, Toothbrush and Preforms and packaging bottles.
It has 3 bottling plants each in Taiping, Yong Peng and Shah Alam. Taiping & Yong Peng plants manufacture the Spritzer and cactus mineral water Shah Alam plant produces the Summer drinking water. All the tube wells where water is sources must be approved by the MOH. Spritzer has 8 approved wells in total.
Competitive Advantage
- Perceived Product Differentiation: A good quality source of mineral water at its Taiping facility able to sell higher 2 – 3 times prices than drinking water.
- Low Cost Producer :Upstream integration with sourcing of mineral water underneath of Taiping rainforest (which is free), manufacture owns plastic bottle, preforms and bottle caps, owns inventory warehouse and distribution network.
- High entry and exit barrier cost for natural mineral water with endorsement MOH for “special purpose” plant and automation bottling facilities.
Growth Driver
- Further improve and upgrade warehousing and distribution system to cater for the larger production volume , focus on operational efficiency and improve on our productivity to remain competitive – Sales more
- Plans to grow export sales which currently account for less than 10% of our revenue. – currently established subsidiary in Hong Kong & China for penetrate sales of premium mineral water brand in China mainland – Sales new geographical areaBusiness Risks
- Low switching cost/ high substitution effect – too varies of products choices, water is water, it is available everywhere.
- High competitive business environment, every F&B giants could easily penetrate into mineral bottle market.
- Water filter available in the market (Espring, Diamond, Coway)- office no longer install water dispenser
- Volatility of raw material price- PET (resin derive from crude oil)
Fianancial Analysis
Revenue increases year on year at a steady pace without sign of volatility. Average Revenue growth for the last 10 years was 16%. The big gap between cost of good sold and revenue showed the group able to increase price at sales per unit. The operating and net margin stay become single digit due to high operating cost in selling and advertising. ROE shows increasing at a steady pace contributed by asset turnover capacity, showing the group able to spread its fixed cost and increased cost per unit of production. Over the years, the cash conversion cycle is dropping, showing a good sign of company collect cash faster in the working capital process. The sales is collect faster than pay to supplier showing the company had a high bargaining position. The group does not commit a dividend policy, however the group had been giving out dividend at a steadily pace.
Valuations/Recommendations
In conclusions, business model is great due to strong branding effect in local and strategic location in sourcing raw material and automation process of manufacturing. However, China sales growth is yet to generate a strong cash flow. The testing of this growth is how the Group establishes its branding effect in China. Strong management team as they have long tracking record in the relevant industry and eager to growth for shareholders. Given its business risks, we consideration of a margin of safety 20%, we recommend Buy for long term at below RM2.00 or at P/E ratio of 10 times.
