This article first appeared in The Edge Malaysia Weekly on September 15, 2025 - September 21, 2025

HAVING established itself as a dominant drinking water player in Sabah over the past two decades, Life Water Bhd (KL:LWSABAH) sees more business opportunities in the East Asean market, leveraging connectivity improvements in the region and in anticipation of rising demand for clean water.

In an interview with The Edge, co-founder and managing director Liaw Hen Kong says cross-border trade within East Asean — better known as BIMP-EAGA (Brunei-Indonesia-Malaysia-Philippines East Asean Growth Area) — has gained pace, especially given vibrant tourism activity in Sabah, the southern Philippines and Kalimantan, Indonesia.

“Sabah is quite a strategic location, as it is close to many islands that don’t have enough clean drinking water. So, we see Sabah as the natural hub for the broader Borneo market. With rising tourism, stronger household incomes and growing investment inflows, demand for clean drinking water will only accelerate. Water is a necessity, not a luxury, which makes this market opportunity structurally strong,” he explains.

Liaw believes the group is well positioned to capture market demand, given the connectivity improvements under the BIMP-EAGA framework, such as Sabah’s deep-sea port and warehousing infrastructure in Lahad Datu.

As demand for clean water is essential, especially for island and rural communities, Liaw is unfazed by the general weak consumer sentiment, pointing to its robust sales performance.

“The double-digit growth in normalised net profit recorded in FY2025 [excluding listing expenses of RM950,000] is proof that we are not affected by the current economic situation. Even consumer habits have changed in the rural areas because it is more convenient now with bottled water,” he emphasises.

Since listing on the Main Market of Bursa Malaysia last November at 65 sen per share, Life Water’s share price had gained 35.4% to 88 sen last Wednesday for a market value of RM416.42 million. It raised RM63.42 million from its public share issue, primarily for the setting up of additional water manufacturing lines and its Sandakan distribution centre, the purchase of polyethylene terephthalate (PET) injection moulding machines as well as working capital.

Life Water is 36.69%-held by Scarecrow Holding, which is controlled by Liaw and his wife, Chin Lee Ling, who is also an executive director of the group.

For the financial year ended June 30, 2025 (FY2025), Life Water reported a 6.8% year-on-year rise in net profit to RM30.02 million, from RM28.12 million. Net margin stood at 17.4%, against 16.9% in FY2024.

To address the minimum wage increase, the group raised the prices of its drinking water this May by 5% to 7%. “The minimum wage adjustment mainly affected our 3QFY2025, temporarily lifting operating costs.

“These were modest and carefully calibrated to balance consumer affordability with our margin needs. These adjustments, combined with ongoing efficiency improvements and reinvestment allowance claims, allowed us to preserve margins,” Liaw explains.

He highlights that the group has strengthened its vertical integration over the past year by increasing in-house production of PET preforms — a key input for plastic packaging. This move, coupled with the expanded capacity at its Keningau plant and streamlined logistics through additional distribution hubs, has allowed the group to mitigate rising costs.

In FY2025, material costs accounted for the largest portion of cost of sales at 66.3%, followed by direct overheads (24.3%) and direct labour (9.4%).

While plastic resin is subject to price volatility, he says the raw material component is manageable.

Currently, Life Water operates four factories and eight warehouses in Sabah. Its expansion plans are underway, with another warehouse in Tawau set to commence operations by the end of this year.

By FY2027, its annual capacity is expected to nearly double to 804 million litres, from 448 million litres now. When the new lines at its Sandakan Sibuga Plant 1 are commissioned within the second half of this year, its annual production capacity will increase to 626 million litres.

To achieve the annual production capacity target of 804 million litres, the Sandakan Sibuga Plant 2 and Kota Kinabalu IZ8 Plant will be expanded at an estimated total cost of RM51 million.

Life Water’s drinking water is marketed under brands such as “K2”, “Sasa” and “Sabah Water”, and its carbonated drink brands include “2more” and “TRITONiC”. It also manufactures private-label drinking water for petrol stations, hypermarkets, wholesalers and hotels.

The drinking water segment recorded RM146 million in revenue, or 84.4% of total revenue, in FY2025, while the carbonated drinks segment’s sales came in at RM26.46 million and accounted for 15.3% of the top line. The remainder came from fruit drinks and the sale of plastic bottles and containers.

Life Water is set to launch a new flavoured beverage range under the “Mandak” brand by the end of the year, as it is focusing on diversifying its product portfolio.

Most of Life Water’s sales come from the Sabah market. For Sarawak, Liaw says the strategy is to adopt a centralised model by appointing local distributors instead of setting up smaller plants that lack economies of scale.

 “With improved capacity, we can now sell even more products to other states,” Liaw says.

In Brunei, the group is leveraging Twinine Sdn Bhd’s established fast-moving consumer goods network to cross-sell beverages, particularly in supermarkets and convenience store chains.

On July 1, Life Water completed the purchase of the Sabah-based sauce and condiment manufacturer for RM10.5 million. The deal is expected to contribute to less than 10% of group sales.

The acquisition aims to expand the group’s product portfolio and synergise its distribution networks while leveraging Twinine’s manufacturing capabilities.

“We want to expand Twinine’s products to the whole of Sabah, especially the west and east coasts,” Liaw notes.

He does not rule out the possibility of embarking on more potential F&B deals that could complement its manufacturing, sales and logistics strengths.

Asked about its planned venture into the mineral water segment — where the products can be sold at premium prices — he says it remains in the exploratory stage, as the group has yet to identify a commercially viable groundwater source.

“This process requires comprehensive hydrogeological studies and regulatory clearances. We will proceed only if we can ensure that the source can last 10 to 20 years. The source scale has to be able to justify the high capital investment required, with the safeguarding of underground resources for future generations.

“We’ve engaged an external party with relevant experience to conduct research and report back to the management team,” he says, noting that the mineral water foray will be a complementary product line aimed primarily at the export market.

As part of its environmental, social and governance initiatives, Life Water has started rolling out recycled packaging for bottled water, even though the cost is 30% higher.

“Our approach includes working with hotels to collect used bottles, which are sent to Johor for processing before being repurchased for reuse in our injection machines. This creates a circular economy loop while raising awareness, especially through school outreach programmes on recycling and water education,” explains Liaw, who is also chairman of the Malaysian Plastics Manufacturers Association (Sabah branch).

Life Water’s water manufacturing business is not labour-intensive, employing a workforce of about 600, of which nearly half are in logistics.

There are no plans to raise funds for its expansion, as it will funded by bank borrowings. As at end-June, the company had a net debt position of RM80 million, with RM23.08 million in cash, bank balances and fixed deposits, against RM103 million in bank borrowings.

A dividend of 1.59 sen per share amounting to RM7.52 million was declared for FY2025, representing a payout ratio of 25%, which was higher than its dividend policy of at least 20%. This translates into a dividend yield of about 1.8%.

All three analysts tracking Life Water have “buy” calls, with a consensus target price of 99 sen, implying upside potential of 12.5%.

“We remain positive on Life Water’s future growth, via its geographic expansion plans into neighbouring markets and new product launches, supported by its ongoing capacity expansion plans,” says PublicInvest Research in an Aug 26 note. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.