PETALING JAYA: Ranhill Utilities Bhd
’s prospects may improve on expectations of higher water tariffs, with analysts citing potential earnings growth as a result.
The anticipated tariff hike, particularly for data centres (DCs), is seen as a favourable development for Ranhill’s water operations, which could enhance its financial performance in the coming years.
RHB Research recently upgraded Ranhill to “buy” from “sell,” raising its target price to RM1.37 from RM1.05.
The research house noted that while there are no changes to its earnings estimates, “we take the opportunity to lower our discount rate for Ranhill’s water segment to 6% from 7.5% to reflect the imminent favourable regulatory conditions via the potential of higher water tariffs, especially for DCs.”
It highlighted that water tariffs nationwide are expected to rise, with the National Water Services Commission (SPAN) instructing water operators to secure written approval from state governments by March 31 before implementing the new tariff-setting mechanism.
The research house noted that a recent media report on the likelihood of the government raising water tariffs by up to 30% in Selangor, Kuala Lumpur and Putrajaya from July this year signals broader tariff adjustments across the country.
In particular, RHB Research observed that DCs may face a special tariff rate of RM5.50 per cubic metre, subject to approval from the Energy Transition and Water Transformation Ministry.
“For Ranhill SAJ Sdn Bhd’s case, perhaps any specialised tariff for DCs should not exceed what is imposed in Singapore,” the research house said.
It pointed out that Singapore’s non-domestic industrial water prices are set at S$1.75 (including waterborne tax of S$1.09) effective next month which equates to RM5.83 – higher than the aforementioned special water tariff category of RM5.50 for DCs.
According to RHB Research, if Johor implements a water tariff hike by July with an increase ranging by between 2.5% and 10% for both domestic and non-domestic users, coupled with the special water tariff for DCs, Ranhill’s earnings for the financial year ending June 30, 2026 (FY26) and FY27 could rise by 13%.
The research house also accounted for periodic tariff hikes, which may occur every three years subject to SPAN’s approval, starting from the next operating period in 2027.
Meanwhile, TA Research maintained its “sell” call on Ranhill with a target price of RM1.05, pending further clarity on the water tariff restructuring proposal.
It said the latest developments aligned with its earlier discussions with SPAN southern region and Johor state agencies in January, where a tariff restructuring was proposed to accommodate rising capital expenditure needs driven by the southern state’s expanding DC industry and the Johor-Singapore Special Economic Zone.
“It is understood that the plan to raise the water tariff requires agreement by all states and Cabinet approval thereon,” TA Research noted.
While the magnitude of the proposed hike for Johor’s non-domestic sector remains unclear, TA Research said: “Given that Singapore’s water tariff is 64% to 203% higher than Johor’s highest band for the non-domestic sector, we see room for a meaningful increase without compromising competitiveness in attracting inbound investments from Singapore into Johor.”
While TA Research made no changes to its earnings forecasts, it observed that its initial estimates suggest that every 10 sen per cubic metre increase in Ranhill SAJ’s overall blended tariff could increase group’s financial year (FY26) earnings by 8% to 9%.
