KUALA LUMPUR (Jan 18): Analysts recommend a “sell” call on Ranhill Utilities Bhd, even after the National Water Services Commission (SPAN) announced the first domestic water tariff hike in nine years on Wednesday (Jan 17).

TA Securities in a note on Thursday said while the tariff hike will boost Ranhill’s bottom line and provide more cash flow to invest in lowering its non-revenue water (NRW), the share price has moved ahead of its fundamentals.

As such, the research house downgraded its call on the counter to “sell” while raising Ranhill’s target price (TP) to RM1.07 from 96 sen, based on sum-of-parts (SOP) valuation.

The raise in TP was after adjusting its blended water tariff assumption from RM2.32 per cubic meter (m3) to RM2.45 per m3. TA Securities also increased its FY2024 earnings forecast on Ranhill by 3.5% and for FY2025 by 3.4%.

Separately, Maybank Research maintained “sell” on Ranhill with an unchanged TP of 70 sen based on SOP valuation, as the tariff hike has been more than priced-in in its view, given the significant share price appreciation in recent months.

SPAN had announced on Wednesday that water tariffs for domestic users in Peninsular Malaysia and Labuan will increase by an average of RM0.22 per m3 , effective Feb 1, 2024.

The water tariff adjustments, governed by the Tariff Setting Mechanism (TSM), will standardise the tariff structure and components for the states in Peninsular Malaysia and Labuan, with a three-year review cycle to maintain consistency in fee determination and in line with inflation, it said.

Following SPAN’s announcement, Johor is also set to implement an increase in its domestic water tariff, said TA Securities.

The average water tariff in Johor for the first 35 m3 per month will increase by 22.9%, equivalent to RM0.29 per m3, the research house added.

At the time of writing on Thursday, Ranhill was traded down four sen or 3.48% to RM1.11, translating into a market capitalisation of RM 1.44 billion.