KEY INVESTMENT HIGHLIGHTS

• FY19 within our expectation but ahead of consensus

• SAJ earnings benefitted from higher consumption and lower unwinding of interest

• Potential recalibration in lease rental payments

• Exploring opportunities in West Java

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

FY19 within our expectations. Ranhill reported earnings of RM24m for its 4Q19, which brought FY19 earnings to RM82m. This was within our estimates but ahead of consensus, accounting for 98% and 130% of forecasts respectively. For FY19, total interim dividends of 5sen/share were declared, translating to a generous yield of 5.2%.

Environment division. The environment (water) division saw a 4%ytd revenue growth driven mainly by increased consumption volume at SAJ. Earnings were up 53% on the back of the higher consumption and lower unwinding interest as SAJ was in the 2nd year of its operating period in FY19. Additionally, earnings were driven by higher developer contribution, coming mainly from Country Garden Pacificview Sdn Bhd for a new development project earlier in FY19.

Power division. The power division reported a 7%ytd increase in revenue due to higher net electric output and higher diesel consumption (fuel is mainly a cost pass-through however). Earnings however, declined 62%ytd mainly due to a scheduled Hot Gas path inspection maintenance cost for GT1A and GT1B at RP2. Additionally, earnings were dragged by a reversal of deferred tax of RM15m due to lower load factor forecasted for the remaining years of RP2 concession, relative to the tax allowances granted.

Slight recalibration in lease rental payments. In 3Q19, 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.

Exploring opportunities in West Java. Ranhill had late last year entered into an MoU with Indonesia based PT Jasa Sarana to explore opportunities in West Java in three key areas: (1) A proposed development of a geothermal plant in the Cisolok-Cisukarame Geothermal Working Area (2) Mini hydro projects in West Java (3) Implementation of the infrastructure for Cirebon Raya Regional and Legok Nangka Regional Waste Management and Final Disposal Project. We understand that these projects may involve double-digit IRRs, though this has to be taken in context with the higher cost of capital in Indonesia.

EPC contract award. Additionally, Ranhill was awarded an RM5.5m EPC contract for a 28,000 PE sewerage treatment plant for phase 2 of the R&F Tanjung Puteri project in Johor Bahru. The contract was awarded on 20th February 2020 and is expected to be completed within a 9 months’ timeframe. We estimate earnings contribution of

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.

Source: MIDF Research - 28 Feb 2020