PETALING JAYA: Ranhill Utilities Bhd
may see better quarters ahead, supported by its water and renewable energy (RE) businesses, say analysts.
However, given its stretched valuations, Bloomberg data showed that all four analysts covering the stock recommended investors to sell Ranhill, with target prices well below its current share price of RM1.41.
MIDF Research analyst Royce Tan said the group’s subsidiary, Ranhill SAJ Sdn Bhd, will continue to contribute strongly to Ranhill’s earnings in the coming quarters due to the domestic water tariff hike.
In February 2024, tariffs were raised between 5% and 59.4%. Ranhill SAJ is Johor state’s sole water operator.
The water business will also see stronger demand from the non-domestic consumers, mainly due to the growth of data centres in Johor and the upcoming economic growth prospects from the Johor-Singapore Special Economic Zone (JS-SEZ) and Special Financial Zone.
“The group also indicated its interest in participating in the recently announced Corporate Renewable Energy Supply Scheme that will allow RE power producers such as Ranhill to sell electricity through the grid via a third-party access,” Tan said in a note.
Meanwhile, TA Research head of research Kaladher Govindan said the February water tariff hike will provide a boost to Ranhill’s earnings in the near term.
“Meanwhile, it is still waiting for the approval of its feasibility study submitted to Indonesia’s Public Works and Housing Ministry for the Djuanda ‘Source-to-Tap’ project, which could be a long-term growth driver for Ranhill.
“It is also a potential beneficiary of catalytic national projects such as the JS-SEZ as well as growth in data centre projects in Johor, in our opinion, albeit these are long-term growth catalysts.”
As for the power segment, Kaladher said Ranhill had proposed an extension to the power purchase agreement for its 190MW Teluk Salut Power Plant beyond its existing concession term that expires in 2029 to address the growing energy demand in Sabah.
“The large-scale solar four (LSS4) project in Bidor, Perak is expected to improve the group’s bottom line from financial year 2024 (FY24) onwards,” he said.
Commenting on Ranhill’s recently reported core earnings for the first half of FY24, Kaladher said it accounted for 41% of TA Research’s and 36% of consensus’ full-year forecast.
This was in line with expectations.
The core net profit in the second quarter of FY24 rose 21.5% year-on-year (y-o-y), driven mainly by the domestic water tariff hike in February 2024.
The increase was however, partly offset by lower revenue recognition by its oil and gas-related consultancy unit Ranhill Worley, given fewer chargeable hours from on-going projects and the absence of construction-revenue recognition on the group’s LSS4 project, which has reached completion.
MIDF Research’s Tan said Ranhill reported a net profit of RM6.5mil in the second quarter, which brought its 1H24 bottom line to RM20.3mil, a decline of 12.6% y-o-y.
“A RM8mil reversal of profits weighed on the quarter, which was previously recognised for Ranhill Worley’s P-82 project.
“The core earnings missed estimates, making up only 36.9% of ours and 36.6% of consensus full-year estimates. Results would have been in line if not for the reversal,” he said. MIDF Research has a target price of RM1.07 for Ranhill while TA Research has a target price of RM1.06.
