KUALA LUMPUR (Oct 29): Mercury Securities has assigned a fair value of 74 sen per share, or 14% premium above its initial public offering (IPO) price of 65 sen, for Main Market-bound Life Water Bhd.
This valuation is based on 11 times the forecasted FY2025 earnings per share (EPS), highlighting the company’s solid foothold in Sabah and its strategic expansion plans, despite the price-to-earnings (PE) ratio remaining slightly discounted compared to its larger peer Spritzer Bhd.
“We like Life Water for its strong position in the Sabah market, well-established distribution network, and opportunistic expansion into the Sarawak market,” the house said in a note on Tuesday.
Besides, Life Water has also committed to a minimum dividend payout policy of 20%.
“With cash proceeds from the IPO, its balance sheet will be strengthened and turned into a net cash position, post-IPO,” Mercury Securities said.
Despite declaring a RM6.6 million dividend for FY2024, the company maintains a solid balance sheet; and with proceeds from the IPO, will strengthen its position to a net cash status, post-listing.
The research house forecasted Life Water’s three-year revenue compound annual growth rate (CAGR) of 13.2%, to grow from RM166.5 million in FY2024 to RM241.8 million by FY2027F (forecast), on the back of its extensive distribution network, coupled with a strategic capacity expansion plan.
The company is targeting growth by penetrating new markets, specifically in Sarawak, Labuan, and Brunei. Life Water plans to leverage local partnerships in Sarawak to streamline its market entry, allowing for minimal upfront capital investment.
“The combined population of Sarawak and Brunei is approximately 2.9 million, indicating a new sizeable potential market that Life Water can tap into,” the house added.
However, margins may experience slight compression due to the establishment of new facilities, with the house forecasting a reduction in profit margins from 17.5% in FY2025, to 15.6% in FY2027F.
Meanwhile, Life Water is on track to double its production capacity by 2027, through a series of facility upgrades, including a 59-million-litre production line in Keningau, expected by the end of 2024, with two additional 178-million-litre lines at its Sandakan Sibuga plants, slated for 2025 and 2027.
The house also noted Life Water’s market dominance in Sabah, where it commands 11% of Malaysian bottled water market and is among the largest producers in the region.
Life Water primarily manufactures beverages, including drinking water and carbonated drinks, and is also involved in plastic packaging production, delivery, and distribution services, with main operations located in Sabah.