Analysts: Upsides to Sabah’s Life Water ahead of IPO

KUCHING (Oct 29): Industry analysts TA Securities Holdings Sdn Bhd (TA Securities) and Malacca Securities Sdn Bhd (Malacca Securities) have assigned target prices (TPs) of 87 sen to 92 sen to Sabah-based beverages company, Life Water Bhd (Life Water), ahead of its initial public offering (IPO) on Bursa Malaysia’s main market board that is scheduled to be held on Nov 13.

The TPs of 87 sen from TA Securities and 92 sen from Malacca Securities represent respective upsides of 33.8 per cent and 41.5 per cent to Life Water’s IPO price of 65 sen.

According to the analysts, they reckon that the upsides are fair given that their valuations are based on price earnings ratios (PERs) that are comparable to Life Water’s closest competitors.

Malacca Securities guides that their valuation is based on a PER of 13-times, pegged to the mid-FY26F earnings per share (EPS) of 7.04 sen, which they believe to be fair as the group’s closest peer, Spritzer Bhd’s historical and forward PER stood around 12.9 to 13.4-times.

Meanwhile, TA Securities guides that their TP of 87 sen is based on a PER of 13.3-times for its 2025 earnings per share (EPS) which is in line with the simple average PER of comparable companies in the beverages sector.

Overall, both analysts were optimistic on Life Water’s upcoming IPO due to its competitive advantages of being the leading brand of bottled water and carbonated drinks in Sabah, its wide distribution network and experienced management team.

Life Water who currently holds circa 11 per cent of the market share of bottled water in Malaysia has a vast distribution network that includes retailers and wholesalers comprising of 3,250 retail outlets, 520 food service outlets, 150 wholesalers, and 100 hotels.

The group currently has a total production capacity of circa 389 million litres of drinking water and circa 37 million litres of soft drinks across its 3 plants, KK IZ4 Plant, KK IZ8 plant 1 and Sandakan Sibuga plant 1.

Their current utilisation rate is above 70 per cent and their total annual production rate for drinking water is expected to increase to circa 804 million litres by 2027 once the its new Keningau Plant and two new drinking water manufacturing lines in Sandakan is up and running.

“The group’s operations are further supported by other business activities, including plastic packaging production and delivery and distribution centres,” TA Securities added.

Malacca Securities added that the group also boast superior margins compared to its peers as its recent profit after tax (PAT) showcases margins of 13 to 17 per cent which outshines peers like Spritzer and Fraser & Neave Bhd (F&N) who command lower margins at 10 to 12 per cent for Spritzer and 3 to 4 per cent F&N.

“We believe this is mainly due to two key differentiating factors such as lower tax rates, as its carbonated drinks do not surpass the sugar tax threshold, and strong customer preference for Life Water’s products, despite being sold at a premium in Sabah, contributing to higher margins,” Malacca Securities opined.

Moving forward, TA Securities believes that the group’s upcoming new products combined with its ongoing marketing and promotional activities will enable it to maintain its current market position while capitalising on new opportunities in the Sabah market as well as in neighbouring markets like Sarawak and Brunei.

Meanwhile, Malacca Securities is projecting the group to hit a three year compound annual growth rate (CAGR) of 9.8 per cent with a core PAT expected to reach RM31.5 to RM37.2 million over the next three years.

Life Water’s IPO on Nov 13 will include a public issue of 7.56 million new shares and an offer for sale of 28.39 million existing shares to selected investors through private placement, collectively offering investors a 26.62 per cent stake in the company.

The company plans to allocate RM19 million for a new drinking water manufacturing line at its Sandakan Sibuga Plant 1 and RM12 million for a similar line at Plant 2.