Ranhill Utilities Bhd emerged as a stock with upward momentum and will likely steer higher. In the past year, the counter has surged an amazing 93%!

This is despite the water utility company posted below expectations 4QFY23 results. What was disappointing was it registered a core loss of RM20.8 million, after stripping off exceptional items. Particularly the matching grant from the government amounting to RM68.5 million (80% effective stake of RM85.7 million received).

The earnings miss was mainly attributed to higher-than-expected non-revenue water (NRW) maintenance costs. Under the National NRW Reduction programme, state water operator that manages to achieve the NRW target in the year will be eligible for a matching grant for part of the cost incurred (50% or 75% depending on target achieved).

Ranhill apparently managed to achieve NRW level of 25% in FY23, below the threshold to be entitled to the matching grant of 50% of the costs incurred for undertaking NRW improvement works.

On a quarter-on-quarter basis, Ranhill’s net profit more than doubled in 4QFY23 due to government grants mentioned above and higher contribution from Ranhill Worley from greater progress of newly secured projects.

Nonetheless, the group registered a core loss of RM50.7mn in 4QFY23 compared with a core profit of RM7.7mn in 3QFY23, which is possible due to higher maintenance costs for Ranhill SAJ.

4QFY23 net profit plunged 65.8% YoY due to lower grant received and higher NRW maintenance costs.

On a YTD basis, FY23 net profit dipped 39.2% YoY on the back of higher electricity costs, higher NRW maintenance costs and lower recognition of government grant compared to the year prior.

Ranhill Utilities remains committed to its objectives of reaching a water, wastewater, and reclaimed water treatment capacity of 3,000 minimal liquid discharge (MLD) by 2027.

The company also targets to achieve a generation capacity of 1,000 megawatts in the energy sector. It has submitted a proposal to extend the power purchase agreement for its Teluk Salut Power Plant, which is set to expire in 2029.

Ranhill said that, in line with its growth strategy, the company had embarked on significant expansion initiatives in both the environmental and energy sectors.

In Indonesia, it is collaborating with strategic partners to spearhead the 'Source-to-Tap' project, aiming to provide treated water to four regions.

In Thailand, its unit, AnuRAK, has submitted bids for upgrading existing treatment plants and establishing new facilities, leveraging Ranhill's expertise in wastewater treatment.

It looks like investors buying into Ranhill Utilities will enjoy not only earnings from the domestic sector but in the region as well.