Water tariff hike set to boost Ranhill’s earnings

RHB Research said it was making no changes to its earnings estimates pending further clarity from management.

PETALING JAYA: Ranhill Holdings Bhd could post additional billings of about RM30mil to RM50mil for the financial year 2023 (FY23) following the water tariff hike for non-domestic sector in Johor, according to RHB Research.

The research firm understands the group’s 80%-owned water operator subsidiary, Ranhill SAJ (RSAJ), may recognise differences between old and new tariffs for non-domestic users for the months of August to December 2022.

“As such, it is expected to see additional revenues of circa RM10mil to RM20mil for this period,” said RHB Research in a note to clients.

However, the research firm said it was making no changes to its earnings estimates pending further clarity from management.

RSAJ began implementing the new water tariffs effective Jan 1, 2023 for non-domestic users.

“The last water tariff hike took place in 2015, hence RSAJ’s latest hike is timely in easing pressure on earnings caused by higher lease payments and running costs.”

It said the increases in water tariffs for non-domestic users range between 20 sen and 30 sen per cubic metre or 6% to 10% rise.

Meanwhile, the minimum monthly charges for non-domestic users and special segments (which have minimum contributions to RSAJ’s total non-domestic billings) such as houses of worship, welfare institutions and shipping saw 3%, 129% and 40% increases, respectively.

It said the hike was in line with the water tariff review gazetted by the government for non-domestic users and special categories in Sabah, Sarawak and Labuan, effective Aug 1, 2022.

Assuming the differences between the old and new tariffs for non-domestic users for the August-December 2022 period is to be recognised for FY22, the research house expects Ranhill’s full-year earnings to be around 10% to 20% higher than its current estimates, reaching between RM37mil and RM42mil.

As for FY23-FY24, it forecasts Ranhill’s earnings could rise by more than 15% from the current projections. “Conversely, should the extra billings for August-December 2022 be booked in FY23, full-year earnings may rise by more than 20% from the current estimates.”

Maintaining its “buy” call on the stock with a 55 sen a share target price, the research firm said the stock’s long-term catalysts include Indonesia’s Djuanda source-to-tap water project, which has an estimated treatment capacity of 605 million litres per day.

“The feasibility studies of this project is undergoing a review prior to submission to the Indonesian government, after which initiator status will be granted to a Ranhill-led consortium. This status will enable the consortium to bid for this project via a public tender with a right-to-match advantage,” said RHB Research.

Another catalyst is if the group’s bid to develop a 100-megawatt combined-cycle gas turbine plant on Sabah’s west coast sees a positive outcome.