PETALING JAYA: The outlook for Ranhill Utilities Bhd
remains challenging, with analysts cautioning its stretched valuations and regulatory uncertainties could weigh on investor sentiment despite potential long-term catalysts in the water and power segments.
TA Research trimmed its underlying earnings forecasts for the company to reflect weaker-than-expected performance and a financial year-end change to June from December.
“In line with this, our 2025 forecast reflects an 18-month period, to take into account the transition,” the research house said.
Given the earnings revision, TA Research lowered its sum-of-parts-derived target price for Ranhill to RM1.05 per share from RM1.10 previously.
“A review of water tariffs is a potential catalyst, but at this juncture, Ranhill’s valuations already look stretched at 36 times 2026’s price-earnings (PE) ratio, while only offering dividend yield of 1.7% throughout our forecast horizon,” it added.
TA Research maintained its “sell” call on Ranhill pending further concrete progress on the water-tariff review.
Maybank Investment Bank (Maybank IB) Research echoed a similarly cautious stance.
It stated that Ranhill’s results for the three months to last December were in line with expectations, as sequentially lower revenue was offset by the recognition of an incentive for a reduction in non-revenue water, albeit lower year-on-year.
“Valuations remain stretched at more than 25 times PE, and potential optimisation efforts would likely take time to bear fruit in our view,” the research house said.
It reiterated its “sell” rating with an unchanged target price of 90 sen a share.
The current financial year was the first under new management, and Maybank IB Research did not rule out the possibility of near-term kitchen-sinking or restructuring.
“Longer term, material regulatory gains for the water sector with a more robust framework that allows for improved monetisation needs to be achieved in order to enhance the stock’s appeal, in our view,” it stated.
On the water segment, TA Research pointed out that Johor stood to benefit from the influx of data centres due to spillover demand from Singapore.
“As Johor’s source-to-tap water supply operator, Ranhill is expected to benefit from increased water demand from data centres for cooling purposes.”
Citing the National Water Services Commission, the research house said that data centres in Johor were currently demanding up to 368 million litres per day (MLD) of water, with this figure projected to rise to 586 MLD by 2030, potentially accounting for a quarter of total demand then.
Despite these growth prospects, Johor’s water treatment plant (WTP) reserve margin remained slightly below the national required minimum of 15%, at 14.9%.
However, TA Research highlighted that close to 700 million litres per day of WTP expansion projects had been planned between 2025 and 2030, which was expected to increase Johor’s WTP capacity by 26%. It also noted the water tariff for the non-domestic sector was under review, particularly for high-consumption users such as data centres, with a decision expected by the middle of this year.
“Should it materialise, the tariff revision could be a positive catalyst for Ranhill,” the research house said.
On the power front, TA Research stated Ranhill had proposed an extension to the power purchase agreement for its 190 megawatt (MW) Teluk Salut Power Plant beyond its existing concession term, which expires in 2029, to address growing energy demand in Sabah.
Additionally, it was eyeing participation in the Corporate Renewable Energy Supply Scheme, which would enable corporate consumers to procure green electricity directly from a renewable-energy producer.
Furthermore, there was also potential synergy with Ranhill’s major shareholder, YTL Power International Bhd, which had plans to develop a 500MW solar farm at its YTL Johor Data Centre Park in Kulai.
“We do not rule out the possibility of this project being parked under Ranhill, which could provide another catalyst for the group further out,” TA Research added.
The company’s net profit dropped by 8.3% to RM17.8mil in the fourth quarter of 2024, down from RM19.4mil the previous year, mainly due to a cost overrun at its unit, Ranhill Worley Sdn Bhd, related to the P82 floating production, storage and offloading vessel.
Ranhill Utilities closed at RM1.29 yesterday.
