PETALING JAYA: Ranhill Utilities Bhd
is well positioned to benefit from Johor’s expanding data centre (DC) and industrial sectors, with rising water demand and higher tariffs expected to provide structural support to its earnings.
Hong Leong Investment Bank (HLIB) Research said the August 2025 water tariff restructuring, which introduced a dedicated RM5.33 per cubic m tariff for DCs, has materially strengthened the earnings and cash flow of Ranhill’s 80%-owned subsidiary Ranhill SAJ Sdn Bhd.
“Together with rising water demand, we expect both tariff and volume growth to drive sustainable earnings growth, while higher tariff collection supports further water infrastructure investment,” HLIB Research said in its note last Friday.
Johor currently has about 1.1GW of live DC information technology capacity, with another 8.5GW in the pipeline, which HLIB Research estimated could eventually require about 400 million litres per day of water.
Continued industrialisation and the Johor-Singapore Special Economic Zone are also expected to support longer-term water demand growth, the research house added.
HLIB Research said further upside could come from Ranhill’s expected development of RM3.5bil of water treatment plant capital expenditure under the Investor Water Producer (IWP) structure, as Johor’s water reserve margin remains relatively low at about 12.8%.
The group’s financial position has also strengthened substantially, with core net profits reaching RM310mil in financial year 2026 (FY26).
Net gearing fell to 15.2% at end-FY26 from 62.8% previously, while cash rose to RM593.5mil, it noted.
HLIB Research projects Ranhill’s core net profit at RM301mil for FY27 and RM306mil for FY28, excluding potential higher allowable returns during Operating Period 7 (2027-2029) and possible water infrastructure contracts under the 13th Malaysia Plan.
The research house, which does not rate the stock, assigned Ranhill a fair value of RM4.20 per share based on 18 times calendar year 2027 (CY27) earnings.
It said Ranhill trades at about 11.9 times CY27 earnings, representing a 35% to 50% discount to utility peers, despite its earnings recovery, stronger cash flow and healthier balance sheet.
