Review

• Ranhill Utilities Berhad’s (RANHILL) 1HFY24 core earnings accounted for 41% of ours and 36% of consensus’ full year forecast. We deem the result within our expectation as we expect the 2QFY24 earnings momentum to sustain for the remainder of the year supported by the domestic water tariff adjustment (effective 1 Feb 2024) as well as contribution from RANHILL’s LSS4 plant (achieved COD on 7 Feb 2024).

• QoQ: RANHILL’s core PATAMI rose 138.5% QoQ in 2QFY24 driven mainly by full quarter impact of the domestic water tariff adjustment which, although was implemented from 1 Feb 2024, was only reflected in revenues from Mar 2024 given a typical 1-month lag in billing cycle. In addition, the group saw full quarter contribution from its LSS4 plant, which only achieved COD in Feb 2024.

• YoY: 2QFY24 core PATAMI rose 21.5% YoY and was similarly, driven mainly by the domestic water tariff hike in Feb 2024. The increase was however, partly offset by: (1) lower revenue recognition by Ranhill Worley given lesser chargeable hours from on-going projects (2) absence of construction revenue recognition on the group’s LSS4 project, which has reached completion.

Impact

• No change to our earnings forecasts.

Outlook

• Water Segment: The domestic water tariff for Johor was increased by 29 cents per m3 (+22.9%) for the first 35m3 consumption per month effective 1 Feb 2024, providing a boost to the group’s earnings in the near term. Meanwhile, it is still waiting for the approval of its Feasibility Study submitted to the Ministry of Public Works and Public Housing of the Republic of Indonesia for the Djuanda 'Source-to-Tap' project, which could be a long-term growth driver for RANHILL. It is also a potential beneficiary of catalytic national projects such as the Johor-Singapore Special Economic Zone as well as growth in data centre projects in Johor, in our opinion, albeit these are long-term growth catalysts.

• Power Segment: RANHILL had proposed an extension to the PPA for its 190MW Teluk Salut Power Plant (RSEII) beyond its existing concession term that expires in 2029 to address the growing energy demand in Sabah. The LSS4 project in Bidor, Perak is expected to improve the group’s bottom-line from FY24 onwards. Going forward, RANHILL is also looking to participate in the Corporate Renewable Energy Supply Scheme (CRESS) introduced by the Ministry of Energy Transition and Water Transformation, which allows corporate consumers access to green electricity by procuring green electricity supply directly from a renewable energy producer.

• Consultancy and Services Segment: As oil and gas companies face 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.

Valuation

• Maintain Sell with unchanged TP of RM1.06 as we believe RANHILL’s share price has moved ahead of its fundamentals. RANHILL is currently trading at 36.7x FY25 EPS and only offers dividend yield of 1.5%-1.7% for FY24-FY26.

Source: TA Research - 15 Aug 2024