Negotiations in progress

Ranhill’s more pertinent growth projects (Indonesia Source-to-Tap and RSAJ’s solar farm) remain in the negotiation stage, with management still working on securing approvals. For now, the investment thesis continues to revolve around the timing and quantum of a water tariff hike in Johor (which the Cabinet has approved but the State has not implemented). Maintain BUY with an unchanged MYR0.60 SOP-based TP.

Working on Indonesia

Recall Ranhill’s consortium has initiated the Djuanda Source-to-Tap project in Indonesia. Feasibility studies are currently underway, with Ranhill expecting the process to take at least 3 months. The project will be put up for tender once approved (thus project cost is still fluid). Ranhill’s consortium has the “Right-to-Match” any winning bids due to its Initiator Status. Construction of the project will take another 2-3 years.

Harnessing solar power

RSAJ has been in discussions with the regulators to construct solar farms for self-consumption. Apart from emission reduction, the accompanying PPA would also provide certainty to RSAJ’s unit electricity cost. RSAJ’s electricity consumption totalled 314GWh in 2021, with unit cost of c.42sen/kWh. We estimate c.200MW is required for complete consumption matching. Assuming a 20sen/kWh generation cost and c.12sen/kWh grid cost, we estimate the solar farm could reduce RSAJ’s unit electricity cost by c.10sen/kWh or c.MYR30m annually.

Maintaining forecasts

Our earnings forecasts and MYR0.60 TP (derived from a sum-of-parts with RSAJ, RP1 and RP2 valued on DCF) are unchanged. There has not been any tariff-related news in Johor in the past month. Our base case remains a MYR0.15/m3 hike (+4.6%) in average non-domestic tariff from Jan 2023. Every MYR0.05/m3 increase in average non-domestic tariff would raise annual net profit by c.MYR6m.

Source: Maybank Research - 5 Oct 2022