Ranhill's earnings projected to rise on water tariff hikes

KUALA LUMPUR: RHB Research said the increase in water tariffs by Ranhill Utilities Bhd's water operating unit is timely - given that the last rate hike was in 2015 - and will ease pressure on the group's earnings caused by higher lease payments and running costs.

For FY23, the research firm said the increased tariffs could bring in estimated additional billings of RM30-50mil. It said earnings in FY23 and FY24 could rise by more than 15% from current projections.

In addition, water operator Ranhill SAJ Sdn Bhd could also recognise differences between the old and new tariffs for non-domestic users from August to December 2022, which could bring in an additional revenue of RM10-20mil.

"Assuming the differences between the old and new tariffs for non-domestic users for the Aug-Dec 2022 period is to be recognised for FY22, we expect full-year earnings to be 10-20% higher than our current estimates, ie reaching between RM37mil and RM42mil," it said in its latest company update.

"Conversely, should the extra billings for Aug-Dec 2022 be booked in FY23, full-year earnings may rise by more than 20% from the current estimates," it added.

RHB maintained its "buy" call on Ranhill Utilities with a target price of 55 sen.

Ranhill SAJ, which is 80%-owned by Ranhill Utilities, began implementing the new water tariffs for non-domestic users from Jan 1, 2023, in line with the water tariff hikes gazetted by the government for non-domestic users and special categories in West Malaysia and Labuan, effective Aug 1, 2022.

According to its corporate website, there is an increase in water tariffs for non-domestic users from 20 to 30 sen per cubic meter, which represents a 6% to 10% increase.

It said the minimum monthly charges for non-domestic users, special segments such as houses of worship and welfare institutions, and shipping were raised 3%, 129% and 40% respectively.

On potential long-term catalysts for the group, RHB highlighted Indonesia's Djuanda source-to-tap water project, which has an estimated treatment capacity of 605 million litres per day.

It said feasibility studies are undergoing review prior to submission to the Indonesian government, following which initiator status will be granted to a Ranhill Utilities-led consortium.

RHB said the status enables the consortium to bid for this project via a public tender with a right-to-match advantage.

Another potential catalyst, it said, could take the form of a successful bid to develop a 100MW combined cycle gas turbine plant on Sabah's West Coast.