Review

• Ranhill Utilities Berhad’s (RANHILL) 9MFY24 core earnings of RM33mn (+10.5% YoY) accounted for 70% of ours and 55% of consensus’ full year forecasts. We deem the result within our expectation (but below consensus) as we expect the 3QFY24 earnings momentum to sustain in the next quarter supported by the domestic water tariff adjustment (effective 1 Feb 2024) and sustained contribution from RANHILL’s LSS4 plant (achieved COD on 7 Feb 2024).

• YoY: RANHILL reported a core net profit of RM14.0mn for its 3QFY24, an increase of +82.4% YoY, driven by higher contribution from Ranhill SAJ (RSAJ) following a domestic water tariff hike since 1 Feb 2024. In addition, the power division saw improved earnings due to higher electricity demand, lower maintenance cost (Teluk Salut Power Plant (RSEII) underwent major inspection and multiple maintenance work in 3QFY23) and contribution from the group’s LSS4 plant.

• QoQ: RANHILL’s core net profit rose +4.1% QoQ in 3QFY24 driven mainly by improved contribution from the consultancy and services segment given improvement in progress billings, while the power segment benefitted from higher demand.

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. Further out, the group is 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, albeit these are long-term growth catalysts. Separately, there seems to be uncertainty as to whether RANHILL, under its new major shareholder, intends to continue pursuing the Djuanda ‘Source-to-Tap’ water supply project. The previous MoU with China Energy International Group Co. Ltd (CEIG), which intended to bring in CEIG as a potential partner into the project, has lapsed on 29 Oct 2024. So far, there is no further progress on Djuanda – from the last update, the group was awaiting approval of its feasibility study that was submitted to the Ministry of Public Works and Public Housing of the Republic of Indonesia.

• Power Segment: RANHILL had proposed an extension to the PPA for its 190MW RSEII beyond its existing concession term that expires in 2029 to address the growing energy demand in Sabah. Meantime, the LSS4 plant 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 positioned well to secure more engineering design contracts for carbon capture and storage projects.

Valuation

• We raise our TP to RM1.10 from RM1.06 previously to reflect a 3% ESG premium to our SOP valuation, in-line with our 4-star ESG rating accorded to RANHILL. However, we keep our Sell call as we believe valuations have run ahead of fundamentals – the stock now trades at 34.7x FY25F PER, while only offering dividend yield of 1.7%-1.8% over FY25F-FY26F.

Source: TA Research - 15 Nov 2024