Water tariff hike push for Ranhill bottom line

PETALING JAYA: The water tariff hike for the non-domestic sector in Johor could help boost Ranhill Utilities Bhd’s earnings.

MIDF Research’s back-of-the-envelope calculation suggests a 3% impact to Ranhill’s group revenue from the revision in water tariff rates in the state. Water tariffs for nondomestic users will see an increase of 6%-11% (20-30 sen per cubic meter).

Though the 3% is small, MIDF expects a meaningful amount to flow down directly to Ranhill’s bottom line, pending further checks with management.

At this juncture, the research house estimates about 40%-50% impact to the company’s bottom line against the financial year 2022 (FY22) base.

The tariff hike is effective January 2023 and the impact will be reflected fully from FY23 onwards to Ranhill’s financials.

Ranhill’s 80%-owned Ranhill SAJ (RSAJ), the exclusive water operator for Johor, has proceeded with a tariff hike for the non-domestic sector effective January 2023, MIDF Research stated in a report.

Additionally, the minimum monthly charges for non-domestic, shipping and religious institution consumers were raised by 3%, 40% and 129%, respectively. The non-domestic sector historically contributed about 60% to RSAJ’s revenue.

MIDF Research believes Ranhill’s share price is reaching an inflection point with the contraction in RSAJ’s earnings, following the previous delay in the tariff hike well priced in and reflected in consensus earnings revisions.

It has maintained its “buy’’ call on Ranhill with a target price of 67 sen a share. Ranhill’s dividend yield also remains decent at 4%-5% over FY22-FY23.

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