Awaiting a tariff decision

Ranhill’s 3Q22 results were in line with our expectation, taking into account a cyclically weaker 4Q. For now, the investment thesis continues to revolve around the timing and quantum of a water tariff hike (which the Ministry has approved but the State has not implemented). Maintain BUY with an unchanged MYR0.60 SOP-based TP. A potential reversion to cash dividend (c.5% yield) could further enhance the stock’s appeal.

Results in line

Ranhill’s 3Q22 net profit of MYR9m (+9% YoY, +33% QoQ) brings 9M22 net profit to MYR24m (-5% YoY), 82%/68% of our/consensus full-year forecasts respectively. With 4Q net profit being cyclically weak (as seen in FY20 and FY21) due to possible back-loading of costs, the results were in line with our forecasts (it is unclear if consensus forecasts reflect a water tariff hike). No cash dividend was declared in the quarter, in line with our expectation of a single payout in FY22.

Mixed segmentals

For the quarter, the Environment segment saw sequentially higher PAT on the back of higher revenue. Energy segment posted sequentially higher PAT due to the lack of major maintenance during the quarter (major maintenance at RP2 in 2Q22). Services segment saw sequentially lower PAT, but billings for the segment tend to be volatile. Separately, the statuses of the prospective new projects remain largely unchanged in the quarter.

Penang announces tariff hike

Our earnings forecasts and MYR0.60 TP (derived from a sum-of-parts with RSAJ, RP1 and RP2 valued on DCF) are unchanged. The state of Penang has recently announced an increase in non-domestic water tariff from Jan 2023. Our base case remains a MYR0.15/m3 hike (+4.6%) in RSAJ’s 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 - 1 Dec 2022