RHB Investment Bank Bhd (RHB Research) has maintained its BUY call on Ranhill Utilities Bhd with an unchanged target price of RM1.70, implying a 22% upside potential. The research house said the company’s long-term prospects remain underpinned by strong data centre-driven water demand and the recent water tariff hikes despite the utility firm posting an 18-month core loss.

RHB Research noted that Ranhill registered a core loss of RM70 million for 18MFY25 (June), against its and the Street’s projections of RM55 million and RM66 million in net profit respectively. The loss was recorded after excluding a government grant of RM159.7 million received in the sixth quarter of 2025.

For the latest quarter, Ranhill’s water segment profit after tax rose 34% year-on-year, supported by higher water revenue from its subsidiary Ranhill SAJ. This was achieved even as higher lease rental costs were offset by the government grant. However, the consultancy and services segment posted a net loss of RM31.7 million compared with a RM6.8 million loss a year earlier, due to cost overruns in certain projects.

The power segment also swung into a net loss of RM3.9 million from a profit of RM22.9 million a year earlier, as maintenance and finance costs at Ranhill Sabah Energy I and II outweighed revenue from energy payments and finance income.

RHB Research highlighted that water demand in Johor is expected to strengthen in the coming years, supported by industrial investments such as data centres and manufacturing plants within the Johor Bahru-Singapore Special Economic Zone. It cited DC Byte’s July report, which showed Johor with a live data centre IT capacity of 487MW, alongside 324MW under construction and 1,473MW of committed capacity.

The research house estimated that an additional 300MW of capacity could come online annually over the next six years, with data centre water consumption accounting for 8–15% of non-domestic usage in the next three years.

A potential catalyst for Ranhill, according to the house, could be the government’s National Non-Revenue Water Programme, expected to run from 2025 to 2030 with an allocation of RM2.5 billion. The company’s subsidiary, Ranhill Technologies, could benefit, having previously secured a RM61.5 million contract in March 2022 to replace 103km of pipes in Kelantan.

Despite the reported loss, the analyst said its earnings estimates for FY26 and FY27 remain unchanged, as they have already factored in the impact of tariff adjustments. It also introduced FY28 projections, assuming 4% annual water consumption growth. The research house kept its sum-of-parts-derived target price at RM1.70, incorporating a 4% ESG premium given Ranhill’s ESG score of 3.2 out of 4, which is above the median score of 3.

The stock price as of 10.29 am is RM1.39.