PETALING JAYA: With an upcoming revision of water tariff rates, investors looking for exposure to water infrastructure-related stocks should look to the listed operators and the ones involved in water-related infrastructure construction, analysts say.
The rate revision covers nearly all of Peninsular Malaysia and Labuan from Aug 1.
CIMB Research said the immediate beneficiaries include Ranhill Utilities Bhd
and PBA Holdings Bhd, being the only listed water operators on Bursa Malaysia.
The research house has selected Gamuda Bhd as the preferred play for water-related infrastructure construction pending updates on the private sector’s role in the country’s water sector transformation.
It noted that Gamuda “is in a strong position to secure construction work worth RM4bil from the water supply schemes for Ulu Padas in Sabah, and Northern Perak”, with work for the latter scheme to be carried out on a privatisation basis for a minimum of 40 years.
Gamuda can be expected to be in the running for more jobs under the second phase of the Rasau water supply scheme in Terengganu after taking on the main contractor role for the scheme’s water treatment plant worth RM2bil.
For bulk water transfer, Engtex Group Bhd, one of only two domestic producers of large-diameter mild steel concrete-lined pipes up to 3m in diameter and the sole local producer of ductile iron pipes of up to 1.2m is well-positioned to meet future demand for large-diameter pipe infrastructure, the research house added.
For flood mitigation, the research house suggests IJM Corp Bhd and Malaysian Resources Corp Bhd, with “buy” recommendations and target prices of RM3.70 and 83 sen, respectively.
“In our view, the latest revision in water tariffs provides more room for the water operators to upgrade water infrastructure, accelerate the replacement of ageing pipes, and reduce non-revenue water. The tariff adjustments also help negate a sharp rise in electricity costs and other water-related operating expenses for water treatment plant operators,” it said.
CIMB Research said despite the revision in the water tariff, funding from the private sector would still be required to help reduce the government’s financial obligations to facilitate water-related investments required under the Water Sector Transformation Plan 2040.
