Life Water Bhd: Price Hike Cushion on Resin Inventories

Analysts maintain BUY with a higher TP of RM1.63 for Life Water Bhd, saying a visit to their plant was more constructive.

“We visited Life Water (5328 | LWSABAH MK) at their KKIZ8 plant and emerged with a more constructive view on FY26-27F earnings.

“Management confirmed a RM0.60/carton ASP hike effective May-26 and a contingent second RM0.60 hike in Jul-26, both landing while the Group is still consuming its low-cost PET resin inventory at approximately USD850-900.0/mt (versus spot of around USD1,380.0/mt).

“Run-rate volumes typically track 1.6-1.8m cartons/month, with Apr-26 stepping up above 2m cartons on dry-season demand and 99 Speedmart traction,” says analysts at MBSB.

They say incorporating the confirmed May-26 ASP hike, alongside “our assumption for a sustained period of elevated input costs that is likely to drive a further price increase in Jul-26 and lower margins heading into FY27, we raise our FY26F/FY27F/FY28F core PATANCI forecasts by +5.7%/+10.2%/+11.9%.”

The move is driven mainly by ASP increases that offset a rising input cost environment. Consequently, we revise our TP upward to RM1.63 from RM1.34 after rolling forward our valuation basis to FY27F EPS of 10.2 sen, pegged to an unchanged 16x PER.

Price hikes land into a resin tailwind window. Management confirmed a RM0.60/carton hike on drinking water effective May-26, with a second RM0.60 hike contingent in Jul-26 should resin spot remain elevated.

Critically, these hikes flow through while the Group is still drawing down its 3–5-month resin inventory secured at approximately USD850-900.0/mt, below the current spot of around USD1,380.0/mt.

The result is a window in 4QFY26 (2-month window of May-June) where new ASP meets old cost, supporting a notable step-up in gross margin during the bumper hot-season quarter.

Volume run-rate higher in Apr-26. Management indicated baseline production typically runs at 1.6-1.8m cartons/month, with Apr-26 a particularly strong month stepping up above 2m cartons on dry-season pull- through.

“We attribute the lift to three factors: (i) 99 Speedmart rollout continuing to broaden, with replenishment ordering now bedding in across the network; (ii) the dry season demand pull-through accelerating; and (iii) progressive distribution gains in East Malaysia ahead of the Tawau DC opening in Apr-26. Carbonated drinks and Twinine continue to scale, with Twinine guided to contribute approximately 4-5% of FY26F PAT.

“FY27 ASP fully captures the hike-driven offset. We now embed full-year benefit from both RM0.60/carton ASP hikes in FY27F.”

This offsets the step-up in resin cost as the cheap inventory is depleted around Jul-Oct-26 and incoming purchases reflect prevailing spot.

Management continues to maintain 3-5 months of inventory, while limiting future orders to approximately 1-2 months as it adopts a cautious wait-and-see approach amid the uncertain operating environment.

This allows the group to avoid locking into large forward contracts at elevated spot prices, while preserving flexibility should input costs moderate.

“We trim FY27F gross margin estimates to reflect the higher blended resin cost, though this still represents a healthy margin profile given pricing power has been re-tested and confirmed by trade acceptance of the May-26 hike.”

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