As the new year unfolds, Ranhill finds itself in an auspicious position, situated at the intersection of the right industry and the right location. With favourable tailwinds from ongoing developments, such as the recent water tariff adjustments, the Johor-Singapore partnership, the booming data center sector, and the opportunities presented by the LSS5 package, the company's prospects continue to soar as it navigates through 2024.

1) Johor's Water Tariff Adjustment: A Boost for Ranhill and Infrastructure Development

The recent water tariff increase in Johor, announced by the Government and SPAN after 9 years without adjustment, is welcome news for Ranhill's water operations. This move aims to boost investment in upgrading the state's water infrastructure to meet rising demand. The introduction of the new Tariff Setting Mechanism (TSM) with its 3-year review cycle ensures water tariffs keep pace with inflation, aligning with ongoing regulatory reform efforts. Overall, this adjustment is expected to enhance Ranhill’s earnings for FY24 and beyond.

Moreover, the tariff adjustment enables Ranhill to address Non-Revenue Water (NRW) concerns with the aid of a Government matching grant. Having reduced NRW in Johor from 37% in 2005 to 25.1% by November 2023 – securing one of the nation’s lowest rates - Ranhill is well-positioned to achieve the NRW target and secure the grant. This promises a double win for both Ranhill and Johor's water infrastructure.

In summary, the revised domestic water tariffs offer a positive outlook for Ranhill's financial performance, ensuring sufficient cash flow for investments in reducing NRW. Additionally, the new TSM facilitates favourable adjustments to water tariffs to keep pace with inflation promoting sustainability and stability in the water industry.

2) Johor-Singapore Partnership: A Gateway to Economic Prosperity

The Johor-Singapore connection stands as a vibrant investment hub, bolstered by an enabling environment that fuels Johor's economic growth. With diverse sectors like finance, technology, and electronics drawing interest, the region offers fertile ground for development. The recent MoU signing for the Johor-Singapore Special Economic Zone drives this potential, with initiatives aimed at attracting multinational corporations through tax incentives and streamlined regulations. Singapore's expertise complements Johor's strengths in land, skilled manufacturing labor, and robust infrastructure.

Furthermore, the Rail Transit Link (RTS), currently 65% complete and set to finish by late 2026, symbolises the progress of this collaboration. This significant infrastructure project will greatly enhance connectivity between the two regions, facilitating the smooth flow of goods and people. Discussions about streamlining customs procedures – such as passport-free travel -  and improved border infrastructure underscore the strengthening economic ties between Malaysia/Johor and Singapore. This collaborative approach strategically positions the region as a unified entity, attracting investments and industries looking to diversify their supply chains amid global trade tensions.

These developments carry significant implications for Ranhill, particularly in the utility services sector. As economic activity and industries flourish in the Johor region, the demand for essential services like water and is poised to soar.

3) Riding Johor’s Data Centre Boom

The Malaysian Government's recent push for data center development, particularly in Cyberjaya and Johor, presents an exciting opportunity for Ranhill. Supportive policies such as NIMP 2030, the Digital Economy Blueprint, streamlined regulatory processes, and tax incentives and cost advantages for land, utilities and infrastructure continue to attract investments and spur growth in this industry.

Data centers face mounting challenges with high water consumption. According to RHB, generally, 1MW of data center capacity requires 25.5k m3 of water annually. Assuming a 500MW data center, this would equate to around 13 million m3 of water consumption annually. Ranhill's expertise in water management positions it perfectly to address this challenge.

Additionally, YTLP's recent partnership with Nvidia to establish AI infrastructure in its Green Data Centre Park in Kulai, Johor, is expected to attract significant investment. This collaboration will bring advanced AI computing services like generative AI (ChatGPT) to Malaysia, strengthening Southeast Asia's AI ecosystem and bolstering Malaysia's semiconductor manufacturing ambitions.

Notably, as the government continues to actively engage and attract investments into digitalisation as part of the Digital Economy Blueprint, cloud services are earmarked under the initiative. This includes efforts to increase local data centres as they are a crucial element in providing high-end cloud computing services, as seen in the pipeline of incoming data centre projects in the table below. According to a 2021 MDEC report, by virtue of nurturing an enabling environment for local data centre companies, the local data centre industry is forecasted to generate RM3.6 billion in revenue by 2025.

4) LSS5: Opportunity to Expand RE Portfolio

Ranhill's successful implementation of the LSS4 Bidor 50MW solar farm underscores its expertise in developing and managing renewable energy (RE) projects, solidifying its position as a key player in Malaysia's transition to a greener energy landscape.

The announcement of the new LSS5 package by the Government marks a significant advancement in Malaysia's RE ambitions, with a target to increase RE capacity from 40% in 2040 to 70% in 2050. Under LSS5, a substantial 2GW quota is available for bidding, including 500MW specifically allocated for floating solar projects, which demand higher engineering technicality.

Notably, LSS5 permits individual developers to bid for projects with a maximum capacity of 500MW, representing a significant increase compared to previous limits. This expansion of the LSS program aims to procure tariff offers at the most competitive rates and enhance the financial sustainability of developing LSS projects through economies of scale.

With Ranhill's proven track record in RE project management, the company is well-positioned to capitalise on the opportunities presented by LSS5 to secure additional RE projects and bolster its portfolio and contributing to Malaysia's ambitious renewable energy targets.

In conclusion, Ranhill enters 2024 with a promising outlook, propelled by a blend of favorable circumstances and strategic opportunities. The recent water tariff adjustment in Johor, along with the Government's push for data center development and the expansion of the LSS program, further bolster Ranhill's prospects. With its expertise and position as the sole water operator in Johor and growing presence in renewable energy, the company is well-positioned to capitalise on emerging trends and ensuring continued success in contributing to Malaysia's economic development and environmental sustainability goals.

​