Review

• Ranhill Utilities Berhad’s (Ranhill) 1QFY23 core profit of RM10.5mn (+50.8%  YoY) came in within expectations, accounting for 25% and 20% of ours and  consensus’ full-year forecasts respectively.

• The group declared a first interim dividend of 1.5sen/share (1QFY22:  0.3sen/share).

• 1QFY23 revenue surged 32.2% YoY to RM520.1mn underpinned by higher  contribution from Environment, Engineering & Services (E&S) and Energy  Segment. Environment segment’s revenue grew 8.6% YoY in 1QFY23 driven by  tariff hike on non-domestic sector. E&S segment’s topline more than doubled  YoY driven by higher contribution from Ranhill Worley Sdn Bhd (RWSB) from  higher activity and chargeable hours of newly secured projects. Meanwhile,  Energy segment’s revenue grew 49.6% YoY on the back of higher electricity  demand. Consequently, core profit soared 50.8% YoY to RM10.5mn.

• Sequentially, revenue for the quarter soared 18.0% QoQ due to: i) higher  recognition of water revenue from commercial sector for Ranhill SAJ in the  Environment segment, ii) newly secured projects by subsidiaries in the E&S  segment, and iii) higher electricity demand for Energy segment. As a result, core  earnings (after stripping off non-revenue water reduction incentive of  RM142.3mn received in 4QFY22) turned from a loss of RM0.3mn to a profit of  RM10.5mn.

Impact

• No changes to our earnings forecasts.

Outlook

• We believe that FY23 would be a bumper earnings year for Ranhill on the back  of: i) recovery in Developers’ Contribution, ii) full-year recognition of water  tariff hikes for the non-domestic and special category segments, and iii)  increased earnings contribution from RWSB.

• The group is optimistic of its successful tender of LSS4@Mentari as its first  venture into asset ownership of 50MW large scale solar project. Achieving  project implementation progress at 41.4% (as at 31 Jan 2023), the project is on  target to achieve the scheduled commercial operation date of 31 Dec 2023.

Valuation

• Maintain Buy with an unchanged target price of RM0.67/share based on sum-of-parts (SOP) valuation.

Source: TA Research - 30 May 2023