RHB Investment Bank Bhd (RHB Research) has maintained its BUY call on Ranhill Utilities Bhd with a higher target price of RM1.70 from RM1.37, implying a 26% upside, following the implementation of a water tariff hike in Johor. The research house cited improved earnings visibility and robust demand driven by data centres (DCs) and the Johor-Singapore Special Economic Zone as key catalysts.

The tariff adjustment, which came into effect on August 1, was announced by Ranhill Utilities’ 80%-owned subsidiary, Ranhill SAJ (RSAJ). It introduces increases across all categories of users, including the creation of a new category specifically for DCs. RSAJ said the upward revision is necessary to fund critical infrastructure upgrades such as replacing ageing pipes and expanding treatment capacity through projects like Layang 2 Phase 2 (160 million litres per day), Semanggar (50 MLD) and Semanggar 3 (120 MLD).

Under the new structure, residential users in bands three and domestic bulk meters face increases of 8-11%, equivalent to RM0.20 to RM0.35 per cubic metre. Non-domestic users will see hikes of between 3% and 51%, with non-domestic band two registering the sharpest rise to RM5.30 per cubic metre from RM3.50. Meanwhile, DCs will be charged slightly higher at RM5.33 per cubic metre, which remains below Singapore’s non-domestic industrial water rate of about RM5.80 per cubic metre, inclusive of waterborne tax.

Following the adjustment, RHB Research estimates blended water tariffs will climb approximately 13% to RM2.88 per cubic metre in FY26 from RM2.56 previously, reflecting an 11-month contribution, before rising 20% year-on-year to RM3.14 in FY27. These assumptions led to upward revisions of earnings forecasts by 15.3% for FY26 and 23.4% for FY27. The bank also increased its long-term water consumption growth projection for RSAJ to 4% annually from 3.5%, driven by anticipated demand from new DC capacity.

Citing DC Byte’s July report, the house noted that Johor currently has 487MW of live DC IT capacity, with an additional 324MW under construction and 1,473MW committed. An estimated 300MW is expected to come online each year for the next six years. The research house estimates DC water consumption could account for 8-15% of non-domestic usage over the next three years.

RHB Research added that the National Non-Revenue Water Programme, with an allocation of RM2.5 billion for 2025-2030, could present further upside for Ranhill through its services arm, Ranhill Technologies. This unit previously secured an RM61.5 million contract in 2022 to replace 103km of old pipes in Kelantan. However, the group did not secure new service projects in FY24.