Unexpected grant, services earnings spikes

Ranhill’s 4Q23 result was above our/consensus expectation due to an unexpected government grant at RSAJ and stronger-than-expected earnings at Ranhill Worley. RSAJ’s domestic tariff hike took effect in Feb 2024 and would likely be accompanied by higher costs. Maintain SELL with a higher SOP-based of MYR0.90 (+29%) as we incorporate the water tariff hike. Current valuations are rich and we believe the possibility of a general offer in the near term is low.

Results ahead of expectations

Ranhill’s 4Q23 net profit of MYR24m (-66% YoY, +139% QoQ) brings FY23 net profit to MYR58m (+40% YoY), 28%/26% above our/consensus forecasts respectively. The beat was due to an unexpected MYR86m of government grant (NRW incentive) at 80%-subsidiary RSAJ and stronger-than-expected earnings at Ranhill Worley. No dividend was declared, although we expect a final DPS to be declared upon the release of audited results (we assume a 2.5sen DPS for FY23).

Sequentially higher from Environment and Services

In 4Q23, the Environment segment saw sequentially higher PAT due to the recognition of the government grant. The Energy segment saw sequentially higher losses, possibly due to the interest expense from its LSS4 project kicking-in. The Services segment saw a sequential spike in PAT on higher project billings at Ranhill Worley.

Water tariff hike from Feb 2024

Separately, RSAJ will implement the domestic tariff hike from 1 Feb 2024. The tariff for the lowest tier (0-20m3) is raised by MYR0.25/m3 while that of the subsequent tier (20-35m3) is raised by MYR0.35/m3. We raise our FY24/25 net profit forecasts by 42%/35% respectively to mainly reflect a MYR0.25/m3 domestic tariff hike (along with higher costs) at RSAJ. Our TP (derived from a sum-of-parts with RSAJ and the power plants valued on DCF) is raised to MYR0.90 (from MYR0.70).

Source: Maybank Research - 1 Mar 2024