PETALING JAYA: Ranhill Utilities Bhd
’s financial year 2022 (FY22) came in below expectations, but analysts see an earnings recovery for the group in financial year 2023 (FY23).
TA Research said “FY23 may potentially turn out to be a bumper year for Ranhill” driven by a recovery in developers’ contribution and full-year recognition of water tariff hikes for the non-domestic and special category segments.
The research house also expects increased earnings contribution from Ranhill Worley Sdn Bhd, which is 51% owned by Ranhill.
In terms of cash flow, it said FY23 cash levels could be augmented underpinned by receipt of August to December 2022 tariff hikes billed in arrears.
“Following receipt of the bumper non-revenue water (NRW) incentive, we forecast Ranhill to turn into a net cash position in FY23 (previously net debt).
“As a result, our sum-of-parts target price is raised to 67 sen (previously 59 sen). We maintain our ‘buy’ recommendation,” TA Research said in a report yesterday.
The company reported a net profit of RM97mil in FY22, boosted by an exceptionally strong 4Q22 results where net profit stood at RM73mil. However, the 4Q22 resutls were due to recognition of an NRW matching grant by Ranhill Syarikat Air Johor Sdn Bhd (RSAJ), which is Johor’s exclusive water source-to-tap operator and the main earnings contributor to Ranhill.
This was partly offset by a one-off RM7.5mil loss on a rehabilitation project by Ranhill Water Services.
Normalising for these, MIDF Research said core FY22 earnings of RM22mil fell short of its and consensus expectations due to the weaker-than-expected energy division earnings, while its services division saw margin contraction.
Nevertheless, MIDF said both factors are not expected to recur in the coming quarters as the Ranhill Powertron 2 plant maintenance has been completed, while the rehabilitation project is a one-off factor.
Positively, it said the NRW matching grant received by 80%-owned RSAJ would provide a significant cash boost to Ranhill.
“Post-tax and minority interest, we estimate net proceeds of RM82mil, which will expand Ranhill’s cash position by 21% and reduce net gearing to 70% (from 78% as at 4Q22) once the cash inflow is recognised by mid-FY23. We see possibilities of higher cash dividend payout in FY23 partly utilising the cash proceeds,” said MIDF, which anticipates the group’s earnings to recover in FY23 from the water tariff hike.
To recap, RSAJ had proceeded with a tariff hike of 6% to 11% for the non-domestic sector, effective January 2023.