This article first appeared in The Edge Malaysia Weekly on March 25, 2024 - March 31, 2024

ON the fringes of Taiping town in Perak, where development is scant and greenery and wildlife are in abundance, sits Spritzer Bhd’s headquarters and manufacturing facility.

The tranquil landscape is a sharp contrast to Spritzer’s busy manufacturing facility, where robots and machines efficiently transform pallets of plastic resin into plastic bottles, which are then rinsed, filled with mineral water, labelled and packed into cartons that are carried away to the warehouse by automated guided vehicles.

Business has been brisk for the mineral water company and it is trying to catch up with a backlog of orders. All of its plants — one in Taiping, another in Yong Peng, Johor, and a drinking water plant in Shah Alam — are running at full capacity.

“Our production has not stopped since the first day of 2024 and we are still unable to fulfil 100% of the orders. With the addition of the new lines, we will be back on track,” says Spritzer group CEO Kenny Lim Seng Lee in a recent interview with The Edge at its headquarters.

Spritzer’s new production line in Tai­ping, which should be ready this month, is expected to get production up to speed with its orders. Meanwhile, its new line in Yong Peng is poised for production in April.

Sales for the first three months are looking good, says Lim, who attributes part of the brisk business to the hot weather in Malaysia in the last month, which usually means better sales of bottled water. There is also the prospect of better international tourist numbers this year as travel regulations ease, which is a boon for Spritzer.

“This year is Visit Perak Year and we see sales booming. We think it will continue to boom because of the events organised by the tourism ministry. Chinese nationals no longer need a visa to enter Malaysia, and this fact alone will help encourage the number of China tourists coming to Malaysia.

“There are also Singaporean, Australian and European tourists. Malaysia has been quite affordable for them,” says Lim, referring to the weak ringgit compared to other currencies in the region.

Does this mean another record year is on the cards for Spritzer? For the financial year ended Dec 31, 2023 (FY2023), Spritzer achieved a net profit of RM49.50 million against revenue of RM490.7 million. Both net profit and revenue were record-high numbers for the group since its listing. Revenue grew 13% from a year ago while net profit rose 34%.

Lim says the group is highly confident that it can achieve another record year but he is also quick to dial down any expectation of achieving the same quantum of growth as in FY2023.

“I don’t think 30% growth every year is something that is sustainable but double-digit growth is something we are looking at. Sales of our new product, Spritzer Sparkling Lemon, are picking up; likewise for our sparkling water,” he adds.

The group still derives the bulk of revenue from its mineral water segment, while the carbonated water segment is small, below 10% of total revenue. It also derives revenue from selling its plastic bottles to other companies.

Notably, Spritzer has the largest market share of bottled water in the country, at 40%. Besides the premium Spritzer brand, other bottled water brands under its portfolio include Cactus, Desa and Summer.

Lim says there is more room for growth locally and Spritzer’s market share will surpass 40% this year.

It is looking to push its carbonated water segment and believes that sparkling water sales can help boost growth this year.

“Times have changed. Malaysians do enjoy sparkling water now — it’s trendy and healthy. Healthy in the sense that you get the carbonated drink without the sugar,” explains Lim.

Lim believes that having information at one’s fingertips today has changed the way people view drinkable water and increased their appreciation for mineral water.

“You have many different types of water, whether it’s reverse osmosis (RO) or mineral water. Even in mineral water, you have products that are high in certain minerals. There’s hard water and soft water. People are starting to understand all this,” he says.

“Today, consumers don’t really look at the additional 20, 30 or 50 sen that they pay for bottled water. Instead, they will look at which product will be more beneficial for their health.”

Selling a product today, especially for something as basic as water, is no longer just about quality, Lim says, adding that quality is a given, without which there is no way one can compete.

“You need to inform your customers what they are getting from consuming your mine­ral water. So, silica [in our water] is one thing that we keep emphasising. It is very different from 10 years ago, when our messaging was focused a lot on quality.

“We don’t sell you just the mineral water but we sell you the benefit of drinking Spritzer mineral water,” he explains.

Spritzer spends an average of 15% of its revenue on advertising and promotions every year, which include communicating the benefits of the high-silica content of its mineral water.

To protect the integrity of the mineral water, the group has taken steps to protect the land where its natural mineral water, along with its surroundings, is sourced by buying tracts of land around the area and keeping it undeveloped. It has eight water sources in Taiping.

“The objective is to preserve our source. We’re one of the largest landowners in Tai­ping, with around 400 acres. We don’t want people to come close and start to build factories or pollute the water; that is why we acquired the land around the area,” says Lim.

Lim says a product such as water has to grow inorganically and by venturing into export markets. Slightly over a year ago, Spritzer bought a 30% stake in local beve­rage firm The Tapping Tapir Sdn Bhd for a total consideration of RM2.2 million. The company produces naturally flavoured sparkling water.

Spritzer is on the lookout for smaller beve­rage companies with the potential to grow and complement its existing business. It has its eyes on at least two other companies in the beverage business.

“In principle, both parties agree that it’s a good strategy for both of us. We’re still looking at valuations,” says Lim, adding that one company is in Singapore and the other in Malaysia. He remains tight-lipped on their identities and when a deal might be sealed.

While strengthening its local market share remains a priority, Spritzer is also developing its export markets, especially Singapore, which the group had only recently turned its attention to.

At present, Spritzer’s export market is small, contributing only 8% to total revenue, but it is looking to grow that segment, first by trying to build a stronghold in Singapore.

“Singapore is a good transit hub. People from around the globe visit Singapore. So, if we can be one of the top few brands there, our brand will be elevated to another level,” Lim notes.

Spritzer is present in Singapore, Brunei, China, the UK and the Netherlands. According to an MIDF Research report dated March 8, its largest export market is Singapore, followed by Brunei. This is partly because both countries are adjacent to Malaysia, “which lowers logistics and shipping costs, [thus allowing] Spritzer to remain competitive in the market”, the report says.

According to Lim, opportunities abound in Singapore, given how people there generally consume RO water, which is widely available on the island, and less mineral water. In addition, he says Spritzer products are sold at the same price in Singapore and Malaysia.

Analysts who track the company are optimistic about the company’s export market expansion, particularly its focus on the underpenetrated Singapore market.

BIMB Securities Research analyst Saffa Amanina sees promising prospects and substantial growth opportunities for Spritzer in the group’s export segment.

“The expansion at the Yong Peng plant, combined with its proximity to Singapore, strategically positions Spritzer to benefit from reduced logistical costs, thereby further enhancing its competitiveness in the market,” Saffa tells The Edge.

She adds that Spritzer has entered into a partnership with a new distributor in Singa­pore, which underscores its commitment to tapping into the city state.

Meanwhile, MIDF Research says the focus on Singapore presents immense opportunities for Spritzer, owing to the higher demand for bottled water in the city state. Citing a United Nations’ study, it notes that Singapore was ranked among the top consumers of bottled water globally in 2021.

“The heightened demand in Singapore positions the group favourably to command higher selling prices and margins compared to the local market post-forex (foreign exchange) conversion,” MIDF ana­lyst Genevieve Ng Pei Fen tells The Edge. She has a “neutral” call on the stock, with a target price of RM2.08.

Spritzer is also in Guangzhou, China, where it has a wholly-owned trading company that sells and distributes its bottled water products. The China venture has been bleeding red ink, however, since it was established in 2016. It makes losses of about RM2 million a year.

Nevertheless, Lim still believes in the potential of the Chinese market and has no plans to exit. “The China operation is continuously changing — mostly in terms of the business model. I don’t think we should leave China yet. It takes time to build a brand.

“If you want us to close it down, yes, we can, but then we will have no chance at all [to build Spritzer’s brand in China],” he says.

Being a group that uses an abundance of plastic packaging for its business, it is also cognisant of its need to step up its sustainability efforts. Packaging makes up about 70% of the group’s product cost.

Given a choice, Lim says he would like to use 100% recycled plastic for its plastic bottles. Currently, only the Spritzer brand uses recycled plastic.

“There’s a shortage of recycled resin. It’s more difficult to buy it and it’s 30% more expensive than the virgin resin,” says Lim.

He adds that recycled resin differs in specification from each factory that produces the material, making it more challenging to source a sufficient amount of recycled resin according to the specifications that Spritzer requires.

Spritzer sources its recycled resin from a Japanese company in Johor. Lim believes the supply of recycled resin should increase in the coming years as more factories that make the material are poised to start production.

The total amount of recycled plastic used for its product now is only around 10% and it aims to raise the percentage to 30% by 2030.

As at March 20, Spritzer’s share price over the last 12 months had gained 44% to close at RM2.16 apiece, valuing the company at RM689 million.

Its price-earnings ratio (PER) stands at 13.4 times and it has a dividend yield of 2.89%.

Spritzer’s largest shareholder is Datuk Lim Kok Cheong, who holds a 45.13% interest in the company. He is also chairman of Spritzer and executive chairman of Yee Lee Corp Bhd, where he is also a major shareholder.

Kok Cheong is the brother of Lim’s father, Datuk Lim Kok Boon, founder and managing director of Spritzer. 

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