A catalyst materialises

After a two-year pause, Ranhill has resumed cash dividends, a development that would likely be viewed favourably by investors, in our view. For now, the investment thesis centres upon the timing and quantum of a water tariff hike in Johor (which the Ministry has approved but the State has not implemented). Maintain BUY with an unchanged MYR0.60 SOP-based TP.

Interim cash dividend declared

Ranhill had declared an interim cash DPS of 0.5sen (ex-date on 3 Jan 2023). While the timing of announcement was a surprise (given it was outside the reporting season), we had previously identified the reversion to cash dividends in FY22 as a potential catalyst (recall Ranhill had opted for stock dividends in FY20 and FY21 which we think are less appealing to investors). We currently assume a 2sen DPS in FY22, which represents c.90% payout.

No new development on water tariff yet

Post GE15, only the state of Penang has announced an increase in non- domestic tariff from Jan 2023. There have not been any developments on Johor water tariffs for RSAJ. Nevertheless, the new Minister was quoted in the press of his intention to make the water sector an economic source longer term, with improving the financial sustainability of the water industry among one of the Ministry’s main agenda. A more rigourous adherence to the tariff framework should help improve the overall financial health of water operators, in our view.

Earnings maintained

Our earnings forecasts and MYR0.60 TP (derived from a sum-of-parts with RSAJ, RP1 and RP2 valued on DCF) are unchanged. Our current base case is 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 - 19 Dec 2022