Focusing on earnings and dividend delivery

Ranhill’s FY22 DPS came in higher relative to our expectation, and implies a relatively decent c.5% dividend yield. 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 a higher MYR0.65 SOP-based TP (+8%). The next step in the regulatory reform journey would be a more rigorous adherence to the tariff framework (like electricity and gas utilities).

Decent FY22 dividend

Ranhill has declared a second interim cash DPS of 2.0sen for FY22 (ex-date on 25 Apr 2023). This brings full-year DPS to 2.5sen (higher relative to our 2.0sen expectation), representing a 33% payout (recall FY22 net profit was boosted by sizable NRW incentive). As highlighted previously, the resumption of cash dividends in FY22 (a decent c.5% dividend yield ) is a much-welcome move, in our view. We have raised our annual DPS assumption to 2.5sen (from 2.0sen) going forward.

Officially secures the 100MW Sabah power plant

Ranhill also announced this week, the successful award of the 100MW gas- fired power plant at Kimanis, Sabah that its 60% owned consortium was bidding for. The PPA tenure is for 21 years, with expected commissioning in Mar 2026. This raises Ranhill’s generation capacity in Sabah to 480MW (from 380MW). Assuming a MYR600m cost and at high single-digit project IRR, we estimate a mere c.2sen/share accretion to our SOP.

Revising earnings for tariff hike

We raise our FY23/24/25 net profit forecasts by 19%/30%/22% having incorporated the MYR0.25/m3 hike in RSAJ’s average non-domestic tariff (we had assumed MYR0.15/m3 previously). Our TP (derived from a sum-of- parts with RSAJ, RP1 and RP2 valued on DCF) is raised to MYR0.65 (from MYR0.60).

Source: Maybank Research - 7 Apr 2023