The research house set a target price of RM1.23 on the stock, which offers 45% upside and 4% based on its last traded price of 85 sen on Thursday.
This represents a 20% discount to account for uncertainties in tariff revisions and implies a 3.4x forecast FY21 EV/EBITDA.
"We think this is fair, given the potential rerating catalysts stemming from the extension of Ranhill Powertron I (RPI), Kedah-Thailand cross-border electricity sales, higher-than-expected rate hikes for Ranhill Utilities’ Johor water operations, and further wins in water and renewable energy – yet to be priced in," it said.
According to RHB, the group is expected to generate stable revenue, sustained by scheduled water tariff hikes and population growth.
"We consider future earnings streams to be more predictable, with lower risk, given the somewhat guaranteed pricing, customers, and a product that people simply cannot live without," it added.
Meanwhile, Ranhill is in the midst of coordinating a government-to-government memorandum of understanding for cross-border electricity sale, which is a prerequisite for the Kedah-Thailand cross-border electricity sale project.
RHB said the estimated internal rate of return for the 25-year build, own and operate project is 8% to 9% although it could potentially double Ranhill's earnings base.
Further upsides could stem from future investments into overseas concessions and ventures into solar energy, with capacity of at least 50MW.
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