PETALING JAYA: To further expand its overseas markets, SPRITZER BHD has proposed to place out a substantial stake of its share base to a Singapore-based strategic investor called Dymon Asia Private Equity (Dape).
The biggest mineral water bottler in Malaysia is actively pursuing growth from overseas markets, said executive director Dr Chuah Chaw Teo.
He said: “We think that growth domestically has become a bit saturated now. So, it is a good move to explore overseas markets. The partnership with Dape will take us to new markets and expand the business even further.”
If the private placement exercise is approved by Spritzer’s shareholders at an EGM today, Dape will own 15% of the enlarged share base of the company via Tasik Puncak Holdings.
Chuah said Dape has experience and stakes in the food and beverage (F&B) industry and could contribute to the company.
The Dape team has investments in the consumer and F&B space in China and South-East including Malaysia, Singapore and Thailand.
“They can help us with the export markets and bring the brand to overseas markets especially in the countries that they are already in. To start from scratch will be an uphill challenge and this partnership is a good way to do it.
“Dape would like to give its industry experience and broad networks to support Spritzer.
“Its investment plans in the company are probably for the longer term of five years or more,” Chuah told StarBiz.
Spritzer will be getting a new board member from Dape after the private placement is approved and executed.
The private placement would raise some RM63.81mil (or RM2.33 per share) for Spritzer, of which RM45mil will be allocated for the construction of an automated warehouse and RM18.61mil for working capital purposes.
The balance would go towards defraying the costs in relation to the corporate exercise.
Spritzer will build a single-storey automated warehouse adjacent to its current bottling plant with a built up area of about 105,820 sq ft.
“The new warehouse will have an automated storage and retrieval system. The existing warehouse is operated manually and almost fully utilised now. The current warehouse will not be able to cater to our needs should inventory levels rise,” said Chuah.
He pointed out that demand could grow based on the competitive edge of the company’s flagship mineral water that has high silicon content which he claimed could counter the adverse effects of high aluminium toxicity in the body.
“We think this would help us establish and differentiate the brand when marketing Spritzer overseas. While there are alternative supplements, there is also a question of bio-availability. In the end what is absorbed into the body is what matters.”
He noted that there was increasing research published in peer-reviewed medical journals that pointed to high-toxin aluminium content in the body as being one of the causes of ailments such as Alzheimer’s disease and secondary progressive multiple scerosis (SPMS).
“The latest journal on the effects of silicon-rich water on SPMS is published in EBioMedicine. Note that EBioMedicine is a peer-reviewed journal that is supported by Cell Press and Lancet, one of the world’s oldest and reputable medical journals,” added Chuah.
The company expected the third quarter to be strong pursuant to the promotion and the silver sponsorship of the recently concluded SEA Games in Kuala Lumpur in August.
“There was a lot of demand from the SEA Games and the company is anticipated to announce its results by the end of this month. The fourth quarter may be a little bit more challenging as demand is expected to normalise after the SEA Games before the New Year festivities kick in again in the first quarter of 2018,” said Chuah.
In a research report at end-September when the private placement exercise was announced, Kenanga Research said that the funds would secure Spritzer’s long-term growth plans at the expense of short-term earnings per share dilution.
“While this would eliminate funding concerns for the warehouse, which we believed would have otherwise be funded through a mix of debt and internal cash, the exercise may only translate to improving its FY18 (ending Dec 31) estimated net interest expense position of circa RM1mil to a net interest income position of circa RM0.3mil,” said Kenanga Research.
“However, the dilution of share base would erode shareholders’ value in FY18 given the 15% larger share base. We expect FY17 to remain mostly unaffected with the proposed cash call to be completed by the fourth quarter of this year,” it said. The research unit rated the stock a market perform and target price of RM2.20.
Spritzer’s share price, which was affected from the fund raising announcement, dipped to RM2.13 but it has recovered and was last traded at RM2.30 with a forward price to earnings ratio of 18.4 times. The share-rebound ahead of its EGM also indicated investors’ willingness to ascribe a potentially higher valuation to the company.