KEY INVESTMENT HIGHLIGHTS

• 9M19 core earnings came in-line with expectations

• Group earnings improved 12%yoy

• Environment division driven by increase water consumption and developer contribution

• Power division impacted by scheduled maintenance for RP2

• Slight recalibration in lease rental payments expected

• Maintain BUY at unchanged TP of RM1.45/share

9M19 within expectations. Ranhill reported core earnings of RM19.7m for its 3Q19, bringing 9M19 core earnings to RM64m - after adjusting for RM6m net exceptionals recognized in 9M19. The 9M19 core earnings was in-line, accounting for RM75% of our FY19F core earnings of RM84.7m. A second interim dividend of 2sen/share was declared, where the earlier proposed dividend reinvestment plan (DRP) would apply.

Environment division. The environment division saw a 6%ytd increase in revenue driven by a natural increase in water consumption and higher developer contribution, which is coming mainly from Country Garden Pacificview Sdn Bhd for a new development project. This translated into improved earnings, coupled with lower unwinding of interest as SAJ is now in the 2nd year of its operating period.

Power division. The power division reported a 17%ytd increase in revenue due to higher net electric output and higher diesel consumption (fuel is mainly a cost pass-through however). Earnings declined 31%ytd mainly due to a scheduled Hot Gas path inspection maintenance cost for FT1A at RP2.

Slight recalibration in lease rental payments. Ranhill had obtained a waiver from PAAB on lease rental on RM247m water assets related to the Rural Water Supply project, which results in savings of RM15m/annum on payable lease rental (increases at 2%/annum) from Oct19 - ~RM3.8m/quarter lease rental savings. Additionally, Ranhill obtained a reimbursement on overpayment of approximately RM140m (for period Sep09-Sep19), which is expected to reflect in lower future lease rental. This has yet to be finalized however and we leave our earnings unchanged at this point.

Recommendation. Re-affirm BUY on Ranhill at unchanged TP of RM1.45. Key catalysts: (1) Progress in 1150MW Kedah CCGT power export to Thailand (2) Scheduled rate hike for Johor water (3) Johor water-sewerage integration (4) RM500m NRW-reduction contract wins (5) Successful bid for Large Scale Solar (LSS) 3

Source: MIDF Research - 8 Nov 2019