Risk-reward no longer favourable

Ranhill’s 3Q23 result was below our expectation (but in line with consensus), due mainly to higher-than-expected depreciation. With share price gaining 58% following YTLP’s acquisition of a 19% stake in Oct 2023, we think the possibility of a general offer (hypothetical to begin with) is already priced in. Downgrade to SELL, with our revised SOP-based MYR0.70 TP (+17%) already implying 20x FY24E PER.

Results below our expectation

Ranhill’s 3Q23 net profit of MYR10m (+10% YoY, -15% QoQ) brings 9M23 net profit to MYR33m (+41% YoY), 68%/71% of our/consensus full-year forecasts respectively. The miss, relative to our forecast, was due to higher-than- expected depreciation. No dividend was declared in the quarter, consistent with past practice. There remains no official commentary on YTLP’s (YTLP MK, BUY, CP: MYR2.26, TP: MYR2.30) emergence as a substantial shareholder.

Sequentially weaker

In 3Q23, the Environment segment saw sequentially lower PAT likely due to higher depreciation & amortisation. The Energy segment slipped into losses possibly due to higher maintenance cost at RP2. The Services segment similarly saw sequentially lower PAT on lower project billings at Ranhill Water Services.

Downgrade to SELL

We revise our FY23/24/25 net profit forecasts by -8%/+4%/+6% respectively to reflect 1) latest depreciation run rates and 2) the LSS4 project (commissioning in Jan 2024). Our TP (derived from a sum-of-parts with RSAJ and the power plants valued on DCF) is raised to MYR0.70 (from MYR0.60), as we incorporate the LSS4 project and higher target PER for the services segment (from 8x to 11x on improved infra prospects). Current valuations are rich, and we believe the possibility of a general offer in the near term is low (and already priced-in). [Prior:HOLD]

Source: Maybank Research - 15 Nov 2023