- Keep BUY, new SOP MYR0.55 TP from MYR0.60, 33% upside, c.4% yield. 9M22 core earnings of MYR23.7m (-5% YoY) were below our and Street’s estimates – making up only 59% and 67% of full-year projections The negative deviation was partly due to higher-than-expected operating expenses. We continue to advocate investors accumulating on share price weakness, as the stock is trading below -1.5SD from its 5-year mean EV/EBITDA while the Indonesia venture is progressing positively.
- Results review. For 9M22, the adjusted PAT for Ranhill Utilities’ environment wing dropped 27% YoY on the decrease in construction progress resulting from lesser expansion work in China. Its services unit saw a >50% YoY adjusted PAT growth to MYR26.2m (9M21: MYR10.6m) in 9M22, driven by better contributions from acquired subsidiaries Ranhill Worley and Ranhill Bersekutu – they were fully acquired in 3Q21. The energy segment’s revenue expanded 28% YoY on higher energy payment fuel revenues from Ranhill Powertron I and II to compensate for the elevated diesel consumption (pass-through costs) during Petronas Gas’ (PTG MK, NEUTRAL, TP: MYR17.35) curtailment at this time.
- FY22F-24F earnings lowered by 14.9%, 12.3%, and 13% after dialling down our water consumption assumptions for the water segment. Post- earnings revision, we arrive at a new SOP-derived TP of MYR0.55 after imputing an ESG premium of 2% for its 3.10 ESG score, which is based on our in-house proprietary methodology.
- Looking ahead, we view the services segment as the main agent of growth after securing c.MYR470m jobs in FY22 (46% coming from the engineering- related subsidiaries acquired in 3Q21). Perunding Ranhill Worley (PRW) in particular won a slew of front-end engineering design (FEED) works for oil & gas facilities and carbon capture storage (CCS) projects, eg Kasawari. In fact, PRW recently clinched a detailed design engineering or DDE job for the Kasawari CCS after carrying out the FEED works earlier (Jan-Sep 2022). In regards to the water tariff revision, Ranhill SAJ has not yet announced the magnitude of the tariff hike – we think it should be lower than the MYR0.25/cu m average hike for non-domestic users in West Malaysia and Labuan effective 1 Aug. Assuming a hike of MYR0.20/cu m for non- domestic users by Ranhill SAJ, which may result in a 3.4% increase in overall tariffs, this could result in an earnings accretion of c.MYR6m to the group’s FY23 overall core earnings (assuming a full-year impact). Potential re-rating catalysts: Higher than-expected rate hikes for Ranhill’s Johor water operations and a positive outcome for the group’s bid to develop the 100MW combined cycle gas turbine plant at Sabah’s west coast.
- Risks to our call: Licensing risks, timeliness of tariff revisions, lower-than- expected water consumption and developer contributions, and failing to meet the capacity and energy payment conditions for its power plants.
Source: RHB Research - 1 Dec 2022
