PETALING JAYA: Life Water Bhd plans to increase average selling prices (ASP) by 60 sen per carton by May 1, and potentially by a further 40-60 sen per carton in July, implying cumulative selling price hikes of 15-20%, CIMB Securities Sdn Bhd’s channel checks showed.
The research firm said these moves aim to pass through the recent 60-70% year-on-year (estimated) surge in resin costs.
“As resin accounts for 20-25% of Life Water’s total costs, based on our estimates, a 70% increase in resin prices would translate into a 12-18% increase in total cost of goods sold, which can be well absorbed by the quantum of selling price hikes,“ CIMB Securities said in a report.
It said Life Water has locked in resin at lower prices up to the end of first-quarter FY26 at RM850-900 per tonne against the current market price of RM1,440 per tonne. “This should help cushion near-term margin pressure,“ CIMB Securities said.
The research firm said Life Water views the current operating environment as a long-term positive.
“We gather that, as resin suppliers are prioritising larger customers, smaller players are facing increased pressure from tighter raw material access and higher procurement costs.
“As the largest bottled water producer in Sabah (and potentially East Malaysia), we believe Life Water stands to benefit from its stronger access to resin supply (owing to its size), better operating leverage from its scale, and stronger pricing power supported by its brand and market position,“ CIMB Securities said.
According to Life Water, the second-largest bottled water manufacturer in Sabah is only around one-tenth of its size, suggesting some smaller peers may need to scale back production, creating an opportunity for Life Water to gain market share.
Additionally, demand should remain resilient given the relatively inelastic demand for bottled water in Sabah.
CIMB Securities said: “We have trimmed our FY27-FY28 earnings per share forecasts by 7.4-7.7% to account for higher resin prices and staggered selling price hikes. Accordingly, we lower our target price to RM1.90 from RM2.05.
“We continue to like Life Water for its defensive demand profile, as bottled water remains a daily necessity in Sabah, scalable expansion, with capacity set to rise 2.1x over FY24-28, and multiple growth levers, including its new mini-market client, regional expansion, and FMCG (fast moving consumer goods) sauces and condiments.
“We forecast a FY25-28 core net profit compounded annual growth rate of 22.9%, underpinned by organic demand growth in Sabah, regional growth prospects, and ongoing product rollouts.”
