Many have the impression that 2023 would be a recession year for the market. As a result, investors have started to reshuffle their portfolio and turned defensive. As such, I believe Ranhill is poised for a potential rebound in the year 2023 due to the following reasons.

A natural defensive business nature

Its main core business nature is its water concessions in Malaysia, industrial water concessions in China and water, industrial wastewater and reclaimed water concessions in Thailand. The company is also involved in other energy concession businesses i.e. solar, power generation. Such businesses are generally stable in nature and come with a steady cash flow generation during their concession period. As a result, the predictability of cash flows provides financial resilience to the company and allows it to reward its shareholder with consistent dividends while allowing investors to mitigate market uncertainties. 

Tariff Hike

After the Penang Water Supply Corporation implemented the new tariff effective January 1 for their non-domestic users, Ranhill finally followed suit.

Recently, Ranhill announced on their website (RANHILL SAJ) that tariffs for non-domestic users would increase accordingly. According to a recent Maybank Investment Bank research report, every RM0.05/m³ increase in average non-domestic tariff is expected to raise Ranhill’s annual net profit by RM6 million, representing a 20% forecast increase from their FY21 net profit. Following the post-pandemic economic and border reopening in early 2022, I believe the overall demand for water would gradually increase as well. 

China opened the floodgates for traveling 

Beijing’s recent policy reversal on its Covid-19 quarantine requirement for international traveling is expected to boost outbound travel, which could potentially drive the demand for products and services consumption throughout the world. Combined with the general reopening trajectory observed globally, this positive spillover effect from China's change in Covid zero policy could help soften the impact of the anticipated global slowdown in 2023, and support consumer spending within the region. As business activities normalise back to pre-Covid levels, this would indirectly benefit Ranhill as it drives water consumption and hence demand for their water services. 

Engineering Orderbook 

The company’s current orderbook remains healthy. According to a RHB research report, the company has secured approximately RM470 million jobs in FY2022. Among the projects, one that stands out to me is the provision of detailed design engineering of Kasawari carbon capture and storage (CCS) project awarded by MMHE. This would be the world’s largest offshore CCS project and as such, this would allow Ranhill to gain experience and build its track record for any future offshore CCS projects. As I understand, the project is carried out in several phases and the prospects for the company to obtain more projects for the subsequent phases should be favourable as it progresses.

At the same time, the current oil price has found its floor and with less volatility expected, upstream oil and gas players can be expected to increase oil exploration activities again which translates to more potential job opportunities for companies such as Ranhill Worley, the Company’s engineering services division.