Review

• Ranhill Utilities Berhad’s (RANHILL) 1QFY24 results accounted for 12% of ours and 11% of consensus’ full-year forecasts. We deem the result to be within expectations as we expect better earnings in the remaining quarters from the full impact of domestic water tariff adjustment (adjusted effective 1 Feb 2024) and contribution from LSS4 (achieved COD on 7 Feb 2024).

• QoQ: RANHILL’s PATMI plunged 57.7% QoQ in 1QFY24 due to (i) absence of RM73.8mn government matching grants net of tax that was recognised in 4QFY23 for Ranhill SAJ; and (ii) lower contribution from Engineering Services segment in tandem with the drop in segmental revenue (-6.6% QoQ), which we attribute to lesser chargeable hours from ongoing projects.

• YoY: 1QFY24 PATMI dipped 7.0% YoY dragged by finance cost that surged 39.4% YoY. We believe the surge in finance cost is due to borrowings for the 50MW LSS4 project in Bidor, Perak that was expensed after achieving COD on 7 Feb 2024. This is despite water tariff adjustment for domestic segment.

Impact

• No change to our earnings forecasts.

Outlook

• Environment Segment: The domestic water tariff for Johor was increased by 29 cents per m3 (+22.9%) for the first 35m3 consumption per month effective 1 Feb 2024, providing a boost to the group’s earnings in the near term. Meanwhile, the group is still waiting for the approval of its Feasibility Study submitted to the Ministry of Public Works and Public Housing of the Republic of Indonesia for the Djuanda 'Source-to-Tap' project, which could be a longterm growth driver for RANHILL.

• Energy Segment: RANHILL had proposed an extension to the PPA for its 190MW Teluk Salut Power Plant (RSEII) beyond its existing concession term that expires in 2029 to address the growing energy demand in Sabah. The LSS4 project in Bidor, Perak is expected to improve the group’s bottom-line from FY24 onwards. RANHILL disclosed that it plans to participate in the LSS5, hence owning more solar assets to contribute recurring income in the future.

• Engineering Services Segment: As oil and gas companies face increasing demand to decarbonise their operations, RANHILL’s subsidiary Ranhill Worley is the frontrunner to secure more engineering design contracts for carbon capture and storage projects.

Valuation

• Maintain Sell with unchanged TP of RM1.06 as we believe RANHILL’s share price has moved ahead of its fundamentals. RANHILL is currently trading at 38.7x CY25 EPS and only offers dividend yield of 1.4%-1.6% for FY24-FY26.

Source: TA Research - 28 May 2024