Calm waters even in Pet surge

AMID the continued chatter of a squeeze in polyethylene terephthalate (Pet) resin supply, Spritzer Bhd appears to have steadied its ship.

In these turbulent times, the bottled drinking and mineral water industries are grappling with rising input costs and tightening procurement conditions for their raw material supply.

The rough seas due to the oil and gas supply crisis due to the war in the Middle East have seen some players here having to resort to raising end-product prices.

But not for Spritzer, well, at least not yet.

The company maintains that supply remains intact, revealing that the real pressure point is price, not the availability of Pet resin.

Group chief executive officer Kenny Lim draws a clear distinction and explains further the actual situation that it faces today.

“When the war first started, there were some views around that raw materials could not be supplied to us.

“But we managed to get supply and we have no shortage of Pet resin,” he tells StarBiz 7.

“If one has money, they will be able to buy these materials.

“But yes I know some may have difficulty buying especially if they are buying in smaller quantities,” Lim adds.

The company’s advantage of scale is proving decisive as one of its key competitive edges as Pet prices climb sharply to US$1,200 – US$1,400 per tonne, up from around US$800 prior to the Strait of Hormuz crisis.

For many smaller bottled water companies in this highly fragmented industry, the jump in Pet has already translated into thinner margins or higher shelf prices.

Spritzer, however, has so far been able to absorb this shock - at least temporarily.

A key reason lies in its procurement discipline.

Lim says the company hedges raw material purchases three to four months ahead, meaning its current cost base still reflects pre-crisis pricing.

“Until today we cannot yet see the increased price on our profit and loss statements,” Lim notes, adding that logistics – particularly diesel price has been the more immediate cost pressure for itself.

But the company’s resilience today is also rooted in decisions made years earlier.

Spritzer has quietly rebuilt its margin profile over the past few years, supported by operational tweaks and brand positioning.

Following the rollout of redesigned bottles for its flagship Spritzer mineral water in mid-2022, the group effectively reduced volume per unit while improving cost efficiency across handling and transportation.

The result has been a steady climb in profitability – to double digits, now nearly double from before the bottle redesign.

Net profit margins continued to climb further last year in the financial year 2025 (FY25) to 13.8% after reaching 12.3% in FY24 which was also an increase from 10.1% in FY23 and 8.5% in FY22.

This compares with single-digit margins in the earlier years at 7.3% in FY21, 8.3% in FY19 and 6.9% in FY18 which signals a structural uplift from the new corporate strategy.

That improvement has coincided with earlier price adjustments for its flagship Spritzer brand, giving the group a stronger earnings base and structure heading into the current cost upcycle.

In effect, Spritzer now enters the current crisis from a position of strength – a factor which is now shaping its more measured response to rising Pet costs.

“Maybe Spritzer’s position is different, because the other players may not have that kind of margin as cushion,” Lim says.

“Spritzer mineral water is a better-margin product and it is different from other industry players who are selling at cut-throat competition prices,” he adds.

This margin buffer is allowing the company to hold the line on prices – for now, even as competitors begin to move.

The strategy appears deliberate: preserve consumer demand and market share for as long as possible, while relying on internal efficiencies and its profit margin buffers to offset near-term cost pressures.

“So far, our direction here is we try not to increase prices as we also feel the consumer is being pressured right now.

“We are trying to see if we can maintain – then we maintain the current prices,” Lim says.

The approach is not without trade-offs.

Holding prices steady in a rising cost environment inevitably compresses its margins which were built up the last few years.

Importantly, Lim emphasised the company is not exploiting the lag effect between current inventory and rising replacement costs.

“We are still using old materials so our cost structure now is from before the crisis – we don’t make extra profit from this wartime situation,” he says.

Still, the window for maintaining this stance is finite.

As hedges expire and inventories are replenished at higher prices, the cost reality will catch up eventually if the situation doesn’t normalise soon.

Lim indicates that any necessary price adjustments are more likely to surface in the second half of the year.

“If we have to buy at higher prices, then we have to increase our prices – I think this would be mid-third quarter (3Q) or 4Q,” he says.

“Now it’s a 50:50 situation: we look, see and maintain. But if it really gets bad, then we will have to increase,” Lim adds.

Even then, pricing actions will be selective.

The flagship Spritzer mineral water brand – which has already undergone prior price adjustments and enjoys stronger margins – may see more restraint.

In contrast, the group’s lower-margin drinking water such as Summer could face increases first.

“The Summer brand drinking water has smaller margins and we may have no choice but to increase prices eventually.

“For the Spritzer brand, we will try not to increase prices for now,” Lim says.

On the supply front, confidence remains firm.

The group continues to source from multiple suppliers and sees no immediate risk of disruption.

“Supplies are stable as there are many sources and we are

not afraid of short supply,” Lim notes.

Spritzer’s shares have shown relative resilience in the last year although it has corrected by almost 20% at its depth since the Iran war began – it has since recouped about half of these

losses at the time of writing.

Prior to the war, its shares had been supported by consistent earnings delivery and a growing profit margin structure.

Valuations remain on the richer side compared to smaller peers at a trailing price-to-earnings ratio of 19.07 times at the time of writing, reflecting its brand strength and improved profitability trajectory.

The sustained climb in net margins into double-digit territory has been a key anchor for sentiment, particularly in a market environment where cost volatility is eroding earnings visibility elsewhere.

Looking ahead, the key question is less about supply and more about timing: when and how much pricing power can

be exercised without denting demand amid the uncertain

global economic environment.

For now, Spritzer appears content to play the long game, leaning on the margin gains it has already secured since FY22.