Below expectation

Ranhill’s 2Q24 earnings were below our/consensus expectation, as earnings declined sequentially due to an uptick in amortisation and interest expense. Meanwhile, a recurrence of a NRW incentive in FY24 (thus potentially leading to a spike in 4Q24E earnings) has not yet been ruled out. We maintain a SELL rating on an unchanged MYR0.90 TP (SOP- based) given the stock’s rich valuations.

Higher lease payments

Ranhill’s 2Q24 net profit of MYR7m (-46% YoY, -37% QoQ) brings 1H24 net profit to MYR17m (-27% YoY), 26%/30% of our/consensus full-year forecasts respectively. On a QoQ basis, 2Q24 saw an uptick in amortisation and interest expense along with a spike in lease payments to PAAB. This would suggest that the lease payments to PAAB were raised, possibly after the domestic tariff hike took effect in Feb 2024, in our view. No dividend was declared in the quarter, consistent with past practice.

Adjusting the operating segments

Ranhill has renamed and restated (for 1H23) its segments in this quarter reporting, thus past quarterly results are now not directly comparable. Ranhill’s commentary listed: 1) a MYR24m QoQ increase in RSAJ’s revenue (recall the domestic tariff hike took effect in 1 Feb 2024) and 2) a MYR8m reversal of previously recognized profit at Ranhill Worley in relation to a FPSO design project.

Maintaining forecasts for now

Our earnings forecasts and MYR0.90 TP (derived from a sum-of-parts with RSAJ and the power plants valued on DCF) are unchanged pending management updates. Of particular interest to us are 1) revised run rates for RSAJ’s lease payments to PAAB, and 2) the likelihood of a NRW incentive in FY24. Separately, 5 new directors (including 2 from the Yeoh family) have been appointed onto the now 8-member Board in Aug 2024 following the takeover.

Source: Maybank Research - 15 Aug 2024