INVESTMENT HIGHLIGHTS

• Collaboration kick-starts power export process to Thailand

• Aims to address South Thailand capacity woes given availability of infra in Malaysia

• High single-digit to low double-digit returns potential; significant earnings accretion if successful

• Call and TP under review pending management meeting this week

Power export to Thailand. Ranhill is collaborating with Thai-based Treasure Specialty Co Ltd (TS Co) to explore the development of a of a 1150MW CCGT power plant in Kedah to export power to Thailand, specifically, the Southern region. TS Co is currently Ranhill’s advisor for its Thai water businesses and is expected to take the lead in the project development for the Thailand side. Ranhill is expected to take a 70% stake in the collaboration and TS Co, the remaining 30%.

Kicks the ball rolling. The collaboration is expected to undertake feasibility studies in relation to the plant development. After this, a Government-to-Government agreement has to be secured between Malaysia and Thailand for a power export/import deal, before the project SPV proceeds with negotiations with Thailand’s Sub-Committee on Electric Power Cooperation between Thailand and Neighbouring Countries (S-ECTN).

Addressing South Thailand shortage. South Thailand is underserved with poor connectivity to Thailand’s existing gas pipelines and weak grid connections. Furthermore, Thailand is already a net gas importer with only one regasification terminal amidst depleting domestic reserves. A few coal plants had been proposed in recent years to serve South Thailand but were shelved given strong opposition by environmentalists.

Potential capex. At RM2.5m/MW-RM3.5/MW, we estimate potential capex for the Kedah CCGT project to be within a range of RM3b-RM4b. Given proximity to South Thailand and availability of existing gas supply infrastructure in Malaysia, we think Ranhill could achieve competitive rates for its power export, relative to Thailand’s wholesale rates of THB2.3/kwh – THB4.2/kwh.

Potential returns. The Kedah CCGT could entail reasonably good IRRs of 10%-12% on our estimates and based on a typical 21-year PPA. Potential earnings is massive and may more than double Ranhill’s existing profit base, should Ranhill take even a 50% stake in the project SPV.

Recommendation. Share price has appreciated quite substantially since our initiation late last year, though we note that our current valuation has yet to factor in the potential of the Kedah CCGT and Johor sewerage. Our call and TP is under review pending a management meeting this week.

Source: MIDF Research - 26 Feb 2019