The implementation of the long-overdue tariff hike for the non-domestic segment is an important catalyst and restores some degree of financial sustainability to Ranhill and the industry. The next step in the regulatory reform journey would be more rigorous adherence to the tariff framework (like electricity and gas utilities) says Maybank IB.
Hike for non-domestic users RSAJ has announced on its website that it has begun implementing the previously gazetted (in July 2022) tariff adjustments for the non-domestic segment. The rate for the first 35m3 consumed monthly is raised to
MYR3.10/m3 (from MYR2.80/m3 ), while that of subsequent consumption is raised to MYR3.50/m3 (from MYR3.30/m3 ). Separately, the minimum monthly charges for both the religious institutions and shipping categories have also been raised (the tariff for both is nevertheless unchanged).
The quantum of the tariff hike is in line with the average MYR0.25/m3 increase announced by the government last year. This tariff hike is long overdue says Maybank IB, with the previous tariff adjustment being in 2015, or 3 operating periods ago. With financial sustainability of the water industry among one of the Ministry’s main agendas, more rigorous adherence to
the tariff framework should help improve the overall financial health of water operators.
Earnings forecasts and MYR0.60 TP (derived from a sum-of-parts with RSAJ, RP1 and RP2 valued on DCF) are unchanged for now, pending further updates from management. Maybank forecasts have incorporated a MYR0.15/m3 hike (+4.6%) in RSAJ’s average non-domestic tariff in 2023. Every MYR0.05/m3 increase in average non-domestic tariff would raise annual net profit by c.MYR6m