PETALING JAYA: MIDF Research is mildly positive on Ranhill Bhd’s move to rope in China Energy International Group Co Ltd (CEIG) as a partner for its proposed Djuanda project – Indonesia’s first source-to-tap drinking water supply programme.Ranhill has a 74% stake in the Djuanda project, while other members of the consortium are PT Varsha (10%), PT PP Persero & PT PP Infrastruktur (15%) and Maynilad (0.16%).
The project’s feasibility study is currently being evaluated by the Indonesian regulators, in which if approved, will proceed to a tender process, according to MIDF Research in a note to clients yesterday.
While the Djuanda project looked attractive with a 30-year concession and an expected internal rate of return in the low to mid-teens, the research house said: “The large potential capital expenditure of US$800mil to US$900mil could be a constraint on Ranhill’s balance sheet.” In contrast to Malaysia’s asset-light water industry model, MIDF Research noted the Djuanda project involvesdheavy asset ownership.
“We understand that Ranhill had been exploring to dilute its stake in the project down to an associate share.
“While still early days to conclude, the potential entry of CEIG as an equity partner could finally remove this balance sheet overhang,” the research house pointed out.
Ranhill also planned to collaborate with CEIG, which is a subsidiary of China Energy Engineering Corporation Ltd, for other potential projects in South-East Asia, said MIDF Research.
The research house has kept a “buy” call on the stock with an unchanged target price at 80 sen.
