Boosted by NRW incentive

Ranhill’s 4Q22 result was substantially above our/consensus expectations due to the recognition of a hefty NRW incentive at RSAJ. The investment thesis continues to revolve around the earnings delivery from the recently- implemented water tariff hike (not fully priced-in, in our view). Reiterate BUY with an unchanged MYR0.60 SOP-based TP.

Substantially above expectation

Ranhill’s 4Q22 net profit of MYR73m (13x YoY, 8x QoQ) brings FY22 net profit to MYR97m (+216% YoY), c.3x our/consensus full-year forecasts respectively. The results were boosted the recognition of MYR142m of NRW incentive at 80%-subsidiary RSAJ. No cash dividend was declared, although we expect a final DPS to be declared upon the release of audited results (we assume a 2sen DPS for FY22).

Sequentially weaker underlying performances

Ranhill’s 4Q is cyclically weak (as seen in FY20 and FY21) due to possible back-loading of costs. In 4Q22, the Environment segment unsurprisingly saw sequentially higher PAT due to the NRW incentive (excluding the incentive, PAT would have been stable QoQ). The Energy segment slipped into losses due to higher maintenance cost. The Services segment also saw sequentially lower PAT, with management disclosing a MYR7.5m loss at RWS. Investment holding losses also widened QoQ.

Reiterate BUY

We lower our FY23/24 net profit forecasts 1%/4% respectively on housekeeping, and introduce FY25 forecasts. Our MYR0.60 TP (derived from a sum-of-parts with RSAJ, RP1 and RP2 valued on DCF) is unchanged. The recently-implemented tariff hike (c.MYR0.25/m3) restores some degree of financial sustainability to Ranhill and the industry. The next step in the regulatory reform journey would be a more rigorous adherence to the tariff framework (like electricity and gas utilities).

Source: Maybank Research - 27 Feb 2023