(A) EXECUTIVE SUMMARY

• We initiate coverage on Ranhill Utilities Bhd (Ranhill) with a Buy recommendation. Our target price (TP) of RM0.50 is based on Sum-of-Parts valuation and implies CY23 P/E of 13.6x.

• The Group’s main earnings driver and crown jewel, Ranhill SAJ has an exclusive license to provide source-to-tap water supply in Johor. SAJ operates an asset light model whereby the water assets are leased from the government.

• The Group also operates water treatment plants in China and Thailand. Other water services include: (1) Non-Revenue Water (NRW) management, (2) civil NRW works, and (3) water, wastewater and reclaimed water solutions.

• For its Energy division, Ranhill owns two Combined Cycle Gas Turbine (CCGT) power plants (capacity: 190MW each) in Sabah. In addition, Ranhill is developing a 50MW Large Scale Solar Plant at Perak.

• Ranhill offers engineering, design, management and consultancy services for infrastructure and Energy projects. This is via recently acquired subsidiaries Ranhill Bersekutu (RB) and Ranhill Worley (RW).

• Near-to-medium term catalyst projects that may propel earnings include: (1) Djuanda Water System Project (Indonesia), (2) 100MW CCGT plant (West Coast Sabah), and (3) Kasawari Carbon Capture Storage project.

• For FY22/23/24, we forecast profit growth of 12%/24%/9%. This is largely driven by: (1) full-year contribution from RB and RW, (2) post-pandemic recovery in water volumes at the Non-domestic segment that pays higher tariffs, and (3) hike in Non-domestic water tariffs.

• Assuming a conservative 60% payout (policy: 50%-70%), this implies attractive yield of 4%-6% in FY22E-24F.

Source: TA Research - 26 Sept 2022