• Still NEUTRAL, with new MYR1.06 TP (from MYR1.14), 6% downside, c.1% FY24F yield. Ranhill Utilities recorded an FY23 core loss of MYR11m after excluding a government grant – missing our and Street’s estimates of a MYR46m profit. The negative deviation was partly due to lower-than- expected revenue and higher-than-expected cost of sales. With the tariff hike already announced and reflected in the price, we retain our call, with the stock trading near its 5-year mean EV/EBITDA.

• For FY23, adjusted PAT for the environment segment fell 48% YoY mainly due the higher imbalance cost pass through (ICPT) rate imposed and higher maintenance costs for non-revenue water. The services segment saw >100% YoY adjusted PAT growth due to Ranhill Worley’s higher contribution from chargeable hours of newly secured projects. The energy segment, on the other hand, saw a narrower loss of MYR7m (FY22: MYR11m loss) due to recognition of profit from its solar project.

• We cut FY24-25F earnings by 13% as we dial down our water consumption projections and bump up our cost of sales assumptions. We introduce our FY26F earnings with an orderbook replenishment assumption of MYR400m for the services segment. All in, we arrive at our new SOP-derived TP of MYR1.06 after imputing the latest net debt and a 4% ESG premium.

• Long-term catalysts for RAHH include the Indonesian Djuanda source-to- tap water project (estimated treatment capacity of 605m litres/day (MLD) and capex of USD600m) whereby the RAHH-led consortium is awaiting acceptance of the submitted feasibility study. Once accepted, an initiator status will be granted to the consortium, enabling it to bid for the said project via a public tender with a right-to-match advantage. The icing on the cake would be its engineering services arm via Ranhill Bersekutu (RB) potentially securing any consultant-related services packages for the Kuala Lumpur- Singapore High Speed Rail (HSR) project. In 2017, RB was appointed as the lead reference design consultant for civil infrastructure works under the previous version of the HSR, covering 108km from the border of Selangor/Negeri Sembilan to the border of Malacca/Johor.

• We flag the risk of the Sabah Government’s plan to study the proposal of taking over independent power producers (IPP) in the state over the long term. Recall that RAHH is the largest IPP in Sabah with a total of 380MW capacity generated by two combined cycle gas turbine power plants. Its power segment contributes c.20% of revenue.

• Risks to our call: Lower/higher-than-expected water consumption and failure/success to secure new contracts under the services arm.

Source: RHB Research - 1 Mar 2024