KUALA LUMPUR: RHB Research has reduced Ranhill Utilities Bhd's profit projections for the fiscal years 2023 to 2025 (FY23F-FY24F) by 11 per cent, nine per cent, and nine per cent as it adjusts its assumptions upward.

The investment bank said it expects stronger earnings in the coming quarters due to recognition of backdated billings of the water tariff hike from August to December 2022 in the first half of 2023 (1H23), as well as increased recognition of its engineering services projects such as the RM210 million detailed engineering design job for Saipem in Qatar.

It added that moving forward, prospects for Ranhill include the Indonesian Djuanda source-to-tap water project, whereby the company-led consortium may participate in a public tender via initiator status once feasibility studies are approved.

"Rerating catalysts include a potential boost in FY23F dividend payout if Ranhill partly utilises cash proceeds from the non-revenue water reduction incentive in FY22, coupled with opportunities to participate in more power plant projects in Sabah, with 200 megawatts (MW) of generating capacity expected to come on stream in 2024 and 2025.

"Ranhill has two existing combined-cycle gas turbine (CCGT) power plants with a capacity of 190 MW, in addition to the latest bid secured in March for a 100 MW CCGT on Sabah's West Coast," it said in a note today.

Meanwhile, RHB Research said Ranhill's first quarter ended March 31, 2023 (1Q23) core profit of RM11.1 million, which was an increase of 61 per cent year-on-year (y-o-y) was below its estimates but met Street's – making up 19 per cent and 21 per cent of full year projections, respectively.

It added that the negative deviation was partly due to a higher-than-expected cost of sales.

RHB Research has maintained a "Buy" call on Ranhill, with a new sum of parts (SOP)-derived target price of RM0.72.

It said risks to its call include lower-than-expected water consumption, developer contributions, and failure to secure new contracts under the services arm.

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