Review

• Ranhill Utilities Berhad’s (RANHILL) 1HFY23 core profit of RM22.3mn (+30.6% YoY) came in within expectations, accounting for 54% and 46% of our and consensus’ full-year forecasts, respectively.

• No dividend was declared for the quarter under review, the same as the corresponding quarter last year.

• YoY/YTD: 1HFY23 revenue surged 30.8% YoY to RM1.1bn, underpinned by higher water revenue from Ranhill SAJ Sdn Bhd driven by a water tariff hike (effective 1 August 2022) and higher contribution from Ranhill Worley Sdn Bhd arising from chargeable hours of newly secured projects. Net profit soared 61.2% YoY on the back of revenue growth and lower maintenance cost of steam turbine 1C for Ranhill Powertron II Sdn Bhd, which operates the 190MW Rugading Power Station in Sabah.

• QoQ: 2QFY23 revenue grew 14.1% QoQ due to: i) higher recognition of water revenue from the commercial sector for Ranhill SAJ, ii) newly secured projects by Ranhill Worley, and iii) higher revenue recognition from the construction progress of LSS4 projects. Consequently, net profit improved by 8.4% QoQ.

Impact

• No changes to our earnings forecasts.

Outlook

• Environment Segment: As Johor becomes the new focal point in data centres, demand for water as a cooling medium will likely grow in tandem, leading to robust earnings growth. Regarding the group’s expansion overseas, we believe RANHILL is the frontrunner to win the tender for the Djuanda Source-to-Tap project in Indonesia, considering its vast experience in the field. According to management, the RANHILL-led consortium has submitted the feasibility studies to the authority and is currently waiting for the acceptance of the studies and the call for tender exercise.

• Energy Segment: The Sabah East-West Transmission line is expected to be completed in 2023, enabling up to 400MW of additional electricity to be despatched from Sabah’s West Coast (where both RANHILL’s 190MW power plants are situated) to the East Coast. Meanwhile, the group’s LSS4@Mentari has achieved 62.0% of project implementation progress as of 30 June 2023, on target to achieve the scheduled commercial operation date of 31 Dec 2023.

• Engineering Services Segment: As oil and gas companies face intense and increasing demand to decarbonise their operations, RANHILL’s subsidiary Ranhill Worley is the frontrunner to secure more engineering design contracts for carbon capture and storage projects.

• Overall, we believe that FY23 would be a bumper earnings year for RANHILL on the back of i) full-year recognition of water tariff hikes and ii) increased earnings contribution from Ranhill Worley.

Valuation

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

Source: TA Research - 16 Aug 2023