Ranhill Utilities (Ranhill)’ 2Q23 result was below Maybank Investment Bank(Maybank IB)’s expectation, with lower environmental earnings being partly offset by higher services contribution. They believe the water tariff hike thesis has largely played out for now and prefers Mega First in the utilities space.
“Ranhill’s 2Q23 net profit of RM12m brings 1H23 net profit to RM23m, 41%/48% of our/consensus full-year forecasts respectively. Pre-tax profit was in line, with the miss to our net profit forecast coming from higher-than-expected minority interest. No dividend was declared in the quarter, consistent with past practice,” said Maybank IB in a recent report.
In 2Q23, the environment segment saw sequentially higher Profit After Tax (PAT) on higher revenue. Cost however remained generally elevated. The Energy segment posted sequentially lower PAT from an elevated 1Q23 base due to lower RP2 contribution.
The services segment again saw sequentially higher PAT on the back of higher project billings at Ranhill Worley. Maybank IB suggests a Target Price of RM0.60 and reiterates the Hold rating.
In their view, further share price upside is contingent upon more rigorous regulatory reforms for the water industry and the crystallisation and completion of new projects. Maybank IB have yet to include Ranhill’s new power projects in their forecasts.
“There are several risk factors for our earnings estimates, target price and rating for Ranhill. Regulatory developments, such as licence renewal and tariff determination, have a direct impact on earnings. Unscheduled power plant outages could also result in earnings losses for Ranhill,” said Maybank IB.
