PETALING JAYA: With the National Water Services Commission’s (SPAN) confirmation that the water tariff re-rating is set to come into effect on Feb 1, analysts are of the opinion that sector utility and piping-related counters are set to benefit.

While this may seem obvious, market experts also believe there could be further upside in the value of stocks that may have already experienced a run-up in their share prices prior to the announcement by SPAN yesterday.

Source: FMT

In addition, there is also the general consensus that the water tariff re-rating could serve to indirectly enhance the capacities of corporate Malaysia as a whole.

Higher water tariffs will provide improved return on investments

In a research report published on Dec 16 last year, Maybank Investment Bank (Maybank IB) Research had observed that with Peninsular Malaysia’s water reserve margin at the 15.7% level based on 2022 numbers, the portable water sector is still significantly underinvested at the production level.

Furthermore, it pointed out: “Higher water tariffs will provide improved return on investments (ROI) to the water supply operators which can be ploughed back into investments, including pipe replacements.

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Tradeview Capital’s chief investment officer Nixon Wong concurred with the possibility that better ROIs could be useful, telling StarBiz that the tariff hike provides water supply players with additional funds earmarked for infrastructure replacements and upgrades.

“With an improved funding capacity, companies can bolster their service capabilities, enabling exploration and connection to new and previously unexplored areas,” he highlighted.

Not surprisingly, the securities firm as well as experienced market analysts such as Tradeview’s Wong and Rakuten Trade head of equity sales Vincent Lau picked similar stocks that they think stand to gain such as Ranhill Utilities Bhd and PBA Holdings Bhd.

 As at 21/1/2024

Wong believes the current share prices of certain counters are mirroring uncertainties regarding the actual magnitude of the tariff hike, which suggests potential upside once these details are clarified.

Nevertheless, he added: “The sector might experience a re-rating with more information on the implementation of regular tariff revision and Imbalance Cost Pass Through mechanism.

“This is crucial for sustaining ongoing efforts to ensure regular improvements in piping and related infrastructure.”

His projection that there could be further upside in water-related and piping counters were echoed by Lau, who said potential earnings growth should lend further support to share prices of such stocks despite the early preemptive appreciation seen in some of them.

Source: The Star Biz​