Review

• Ranhill Utilities Berhad’s (Ranhill) 9M22 core profit of RM21.3mn (-5% YTD)  was below our expectations and consensus at 62%/61% of full-year forecasts respectively. The variance was largely attributed to slower-than-expected orderbook recognition from Ranhill Bersekutu (RB) and Ranhill Worley (RW).

• YTD profit contraction was largely attributed to the Environment segment due to a decrease in construction revenue. This arose from lesser expansion works in China. The above more than offset higher contribution from the Services segment whereby profits more than doubled YTD. The latter was underpinned by maiden contributions (start: 3Q21) from newly acquired subsidiaries RB and  RW.

• QoQ profit contraction was mainly due to weakness at the Services segment on the back of lower revenue and margin compression.

Impact

• We lower our orderbook recognition rate assumption for RW and RB to approximate actual run rate in 9M22. As a result, our FY22/23/24 forecasts are lowered by 17%/3%/2%.

Outlook

• Near-to-medium term catalyst projects that may propel earnings include: (1)  Djuanda Water System Project (Indonesia), and (2) 100MW CCGT plant (West  Coast Sabah). Currently, the review of Djuanda is ongoing with the ministry and the project’s off-takers.

• Water tariffs for non-domestic sectors in the state of Johor are set for a hike following the Cabinet’s approval earlier in July 2022. It is now currently pending approval by the state government. We believe the latter is long overdue given the prolonged delay since 2016, and coupled with ageing water infrastructure and inflationary pressures.

Valuation

• Following the adjustment to our forecasts above, Our Sum-of-Parts (SOP)  derived target price (TP) is lowered to RM0.48 (previous: RM0.50). Our TP  implies modest CY23 forward P/E of 13.5x. We maintain our Buy recommendation.

Source: TA Research - 1 Dec 2022