• Maintain SELL with MYR1.10 TP, 22% downside. Ranhill Utilities recorded a 9M24 core profit of MYR31m (-7% YoY), meeting our, but missing Street expectations. With the hefty valuation in the absence of any sizeable nearterm catalyst, we keep our SELL call on RAHH, which is trading at 38.5x CY25F P/E, or over +2SD from its 5-year mean. Dividend yield is also unattractive at just c.1%.

• For 9M24, PAT for the water segment dropped by 18% YoY as the higher revenue from the tariff hike for domestic consumers (effective February) was offset by higher amortisation on service concession assets of RanhillSAJ. Meanwhile, the consultancy and services segment saw a YoY jump in PAT of 54% in 9M24 due to higher profit from its subsidiary Ranhill Technologies (formerly known as Ranhill Water Services) for the non-revenue water reduction project in Johor, in our view. Likewise, the power segment recorded a PAT of MYR3.2m in 9M24 vs MYR1.6m in 9M23 amid higher energy payment revenue of the solar plant in Bidor, Perak,which commenced operations from February this year.

• While we view the possibility of YTL Power International (YTLP MK, BUY, TP: MYR5.68) enhancing RAHH’s operational efficiency in the long run by leveraging on its experience in the power and water services sector -the only near-term catalyst for RAHH we see is the National Non-Revenue Water Programme, to be implemented from 2025 to 2030 with a MYR2.5bn allocation.

• RAHH may benefit from the abovementioned plan via its subsidiary, Ranhill Technologies (under the consultancy and services arm) which has clinched water projects beyond Johor – namely the MYR61.5m job to replace old pipes in Kelantan covering a total length of 103km secured in Mar 2022. In FY24, RAHH has not secured any new jobs under its consultancy arm.

• The MoU inked between RAHH and China Energy International Group Co. (CEIG) has lapsed – meaning that the collaboration to rope in CEIG as a partner together with other consortium members for the Indonesian Djuanda source-to-tap water project (estimated treatment capacity of 605 million litres per day (MLD) has come to an end. As such, the potential of RAHH to lighten its balance sheet via a stake dilution (of c.74%) in the project to an associate level via a new equity partner has reached a road bump.

• No changes to our earnings estimates on a CY basis and hence, SOP-derived TP of MYR1.10 (which bakes in a 4% ESG premium based on an ESG score of 3.2) We take the opportunity to present our 18MFY25 earnings estimates post change in financial year end to June from December. Another catalyst would be a tariff hike for RAHH’s power plant assets in Sabah as Sabah Electricity insists that the state’s current electricity tariff should be revised.

• Risks to our call: Higher-than-expected water consumption.

Source: RHB Securities Research - 15 Nov 2024