Ranhill Utilities’ (RAHH MK) 9M23 core profit of MYR33.4m (+25% YoY) met RHB’s and Street estimates – at 73% and 72% of full-year projections.
RHB Malaysia Results Review citied today (nov 15) that much of the growth came from higher profit recognition from the engineering services arm.
RHB likes the stock, as it is trading at an undemanding -1SD below the 5-year EV/EBITDA mean, with growth prospects underpinned by its defensive nature (water segment) and higher recognition from engineering services jobs as this division moves along the S-curve.
RHB maintains BUY and SOP-based MYR1.09 TP, 20% upside with c.3% yield.
For 9M23, the environment segment saw a 10% YoY expansion in revenue due to the hike in non-domestic water tariffs in January for its subsidiary, Ranhill SAJ.
Nevertheless, the adjusted PAT for 9M23 of the segment declined by 6% YoY due to the increase in the new imbalance cost pass-through or ICPT rate, higher maintenance cost for non-revenue water mitigation, and higher chemicals usage amid higher production volume.
Meanwhile, the services segment saw a 66% YoY adjusted PAT growth to MYR43.5m in 9M23 (9M22: MYR26.2m), mainly due to higher progress billings from its newly secured projects under Ranhill Worley.
Likewise, the energy segment’s adjusted PAT expanded >100% YoY in 9M23 due to profit recognition from the Ranhill Solar I solar farm in Bidor, Perak.
No changes to estimates, as results are in line
Therefore, RHB’s SOP-derived TP of MYR1.09 remains unchanged. The TP also has an ESG premium of 4% imputed. RHB believes that RAHH’s domestic growth prospects lie in the National Energy Transition Roadmap or NETR, which focuses on carbon capture and storage (CCS) and solar power – this could benefit RAHH as the group targets to achieve 1,000MW of energy generating capacity by 2027.
RAHH’s engineering services arm is already involved in the Kasawari CCS project, in addition to its 50MW LSS4 solar farm in Bidor, Perak.
RHB also views RAHH to be a Johor thematic play in light of the anticipated growth in data centres and property projects which may further spur the demand for water.
A cross-border opportunity would be RAHH’s potential participation in the Indonesian Djuanda source-to-tap water project (estimated treatment capacity of 605m litres per day, whereby the RAHH-led consortium may participate in a public tender via an initiator status once feasibility studies are approved).
Moreover, the recent memorandum of understanding signed by RAHH with China Energy International Group to jointly pursue the Djuanda source-to-tap drinking water supply project in Indonesia (Djuanda project) and other projects in South-East Asia may provide a cushion from its balance sheet being over-stretched – as the project has an estimated capex of c.USD700m-900m.
Downside risks to RHB’s call include lower-than-expected water consumption and developer contributions, and failure to secure new contracts under the services arm.