Elevated lease payments

Ranhill’s 3Q24 results were again below our/consensus expectation due to higher-than-expected amortisation arising from elevated lease payments to PAAB. An NRW-reduction incentive in 4Q24 remains a possibility, although not our base case. We maintain a SELL rating on an unchanged MYR0.90 TP (SOP-based) given the stock’s rich valuations.

Results below expectation

Ranhill’s 3Q24 net profit of MYR16m (+59% YoY, +150% QoQ) brings 9M24 net profit to MYR33m (-1% YoY), 52%/54% of our/consensus forecasts. The miss relative to our forecasts, was due to higher-than-expected amortisation arising from elevated lease payments to PAAB. 3Q24 net profit was nevertheless higher QoQ due to sequentially lower tax expense (effective tax rate of 7% in 3Q24 vs. 78% in 2Q24). No dividend was declared in the quarter, consistent with past practice.

More segmental adjustments

Recall Ranhill had reclassified the operating segments of some business units in 2Q24, thus segmental profits are now not directly comparable YoY. In addition, it appears that there have been further retrospective adjustments made to segmental profits, with 3Q24 PAT of both the water and energy segments turning negative while investment holding contribution turning positive.

Changing FY-end to June

Separately, Ranhill has announced a change of financial year-end to June (from December), thus aligning to major shareholder, YTL Group. Hence, the current financial period will stretch over 18 months to Jun 2025. We have adjusted our forecasts to reflect both 1) higher lease payments to PAAB and 2) the change in FY to June. We maintain our MYR0.90 TP (derived from a sum-of-parts with RSAJ and the power plants valued on DCF). We note that a lumpy NRW-reduction incentive in 4Q24 remains a possibility, although not our base case.

Source: Maybank Research - 15 Nov 2024