MIDF Amanah Investment Bank (MIDF Research) has maintained a BUY recommendation for Spritzer Bhd, with a revised target price of RM3.25, down from RM3.54. The research house remains positive on the company's outlook despite the lowered target price, expecting an 11.6% potential return from the current share price of RM2.91. This adjustment reflects a slight downward revision in earnings forecasts due to the expiration of Spritzer's Reinvestment Allowance (RA) tax incentive, which may pressure margins in the coming year.

Spritzer's ongoing efforts to boost capacity were a central focus of the company's recent 3QFY24 analyst briefing. The company's newly installed sparkling water production line, which became operational in October 2024, adds an additional 50 million litres per year to its output. This strategic investment is part of a broader initiative to diversify the product portfolio and cater to evolving consumer preferences.

The sparkling water segment, which currently accounts for only 1.9% of total revenue, is expected to see strong growth moving forward, particularly with recent product launches such as a sparkling lemon flavour. Despite bottled water remaining the dominant revenue driver, making up 79% of total sales, the sparkling water segment offers significant potential for future expansion.

Spritzer's capital expenditure (capex) reached RM36.3 million in 3QFY24, bringing the total for the year to RM74.3 million. The company's focus has been on expanding production capacity, including three new production lines. However, management has indicated that FY25 capex will be lower, with future investments directed toward upgrading its Automated Storage and Retrieval System (ASRS). This will further enhance production efficiency and storage capacity, ensuring the company is well-positioned to meet growing demand.

Despite a relatively small contribution from export sales—8% of total revenue, primarily to Singapore—Spritzer's efforts to strengthen its brand and market penetration in the region are expected to drive better margins from international markets.

On the cost front, PET resin prices remained stable in 3QFY24, averaging RM4.50 per kilogram, which has been supportive of the company's gross profit margins. Renewable energy initiatives also provided cost savings, contributing RM544,000 in 3QFY24. The company is well-positioned to benefit from increased demand driven by factors such as higher household spending, the revival of tourism, and prolonged hot weather, which should support growth in both domestic and export sales.

However, MIDF Research noted that the expiration of the RA tax incentive in the upcoming year could lead to margin compression, as Spritzer will likely face higher tax liabilities under the standard corporate tax rate. In light of this, MIDF Research has revised its FY25-26 earnings forecasts downward by 11% but continues to see solid long-term growth prospects for the company.

Spritzer's outlook remains positive according to the research house, with a stable raw material cost environment and expanding market presence expected to support continued demand.