PETALING JAYA: Ranhill Utilities Bhd
’s latest non-revenue water (NRW) contract in Johor is set to expand the group’s services division’s order book by over 40% to RM940mil.
MIDF Research said in a report the latest contract win is a welcomed development, following slower job wins this year.
“The latest outstanding order book should provide strong earnings visibility over the next three years.
“As the contract win forms parts of our order book replenishment assumptions, we leave our forecasts unchanged for now.”
While there is expected to be intercompany elimination, as the contract was awarded by the group’s 80%-owned Ranhill SAJ Sdn Bhd (RSAJ), MIDF Research believes that Ranhill will be able to recognise the profit portion of the contract (between 10% to 15% of gross profit margin).
“Separately, RSAJ has a key performance indicator (KPI) to reduce Johor’s NRW to 21.3% and 20.9% in 2024 and 2025, respectively, from 25.1% in 2023. If this KPI is exceeded, it will qualify Ranhill to claim matching grants of up to 75% of the NRW capital expenditure spent from the government, which could give an exceptional boost to cash flow and dividends.”
Ranhill announced last week that it had secured a RM283.9mil NRW reduction contract in Johor. It was the group’s seventh consecutive NRW job in Johor since 2011.
TA Research said it is making no change to its earnings forecasts following Ranhill’s latest NRW contract win.
“We maintain ‘hold’ with an unchanged target price of 96 sen per share.”MIDF Research, meanwhile, is maintaining its “neutral” call on Ranhill with an unchanged target price of 80 sen.
“We still like Ranhill for its expansion into renewable energy and growth prospects under the National Energy Transition Roadmap. It is also one of the few plays into domestic and regional water utilities.
“However, given the exceptionally strong share price rally since the entry of YTL Power International Bhd as a substantial shareholder, we maintain our ‘neutral’ call on Ranhill.”
