VIA its 51%-owned Ranhill Worley Sdn Bhd (RWSB), Ranhill Utilities Bhd announced a size-able contract win from Sembcorp Marine Integrated Yard Pte Ltd. The contract is for the engineering detailed design of a new P-82 floating production, storage and offloading vessel (FPSO) for Petróleo Brasileiro SA (Petrobras), for a contract sum of US$27m (RM124m) over a 14-month period. We estimate RWSB’s orderbook to expand to RM278m (slightly more than a year’s worth of RWSB’s annual revenue), of which the bulk of it comprises this latest project.

Details of the FPSO project.

The newbuild FPSO will be one of the largest vessels to be deployed in the Buzios field, an ultra-deepwater oil and gas field covering an area of 853 km2 in the pre-salt Santos Basin, about 180-km off the coast of Rio de Janeiro, Brazil. P-82 is part of Petrobras’ new generation of production facilities, characterised by their high production capacity and the technologies utilised to reduce CO2 emissions. The unit will also be equipped with water injection capacity of 250,000 barrels per day and a storage capacity of two million barrels of oil.

Bulk of contribution in FY23.

The bulk of the project is expected to be captured in FY23F. We estimate around RM106m revenue contribution in FY23F and another RM17m contribution in FY24F. At estimated project margin of around 9%-10% and based on Ranhill’s 51% stake in RWSB, we estimate the project to contribute RM4.9m to Ranhill’s net profit, or 11% of FY23F earnings. As this forms part of our orderbook replenishment assumption for RWSB, we keep our projections unchanged at this juncture. Nonetheless, this is a positive development in sustaining RWSB’s contribution to the group.

Reaching an inflection point?

Having seen significant retracement in the past year, we think Ranhill’s share price is reaching an inflection point with the contraction in Ranhill SAJ Sdn Bhd’s (RSAJ) earnings from a delay in tariff hike well priced in and reflected in consensus earnings revisions. In contrast, we anticipate several key catalysts to materialise in FY23F: (1) A tariff hike for RSAJ in which the federal government had already approved an average 25 sen/cu m tariff hike for the non-domestic sector and is currently pending implementation by the Johor State; (2) commissioning of Ranhill’s Large- Scale Solar 4 (LSS4) project by September 2023; (3) Completion of the Sabah grid upgrade in FY23 and commencement of SK Nexilis Co Ltd’s copper foil manufacturing plant in Kota Kinabalu Industrial Park, which will increase load and improve dispatch for Ranhill Powertron 1 (RP1) and RP2.

Recommendation. We maintain our ‘Buy’ call and keep our SOP-derived TP at RM0.67. We like Ranhill for its earnings expansion prospects: (1) Expansion into Indonesia source-to-tap water supply (605 million litres per day capacity) – in the middle of finalising memorandum of agreement and memorandum of understanding, as well as tender launch by the Indonesian authorities; (2) LSS4 project which is expected to reach commercial operation date by September 2023; (3) completion of the Sabah West-East transmission line upgrade in 2023 which should drive higher dispatch from RP1/RP2 to Sabah’s East Coast; (4) an imminent tariff hike for RSAJ. Dividend yield remains decent at 5.1%/6.1% over FY22F/FY23F, while valuations are undemanding at 2.5x FY22F EV/Ebitda, circa 30% discount to historical mean.

Recommendation: Buy Target Price: RM0.67 by MIDF Research (Nov 15)