Ranhill Utilities has announced that it is roping in China Energy International Group Co Ltd as a partner for the proposed development of a source-to-tap drinking water supply project in Indonesia (Djuanda project). The detailed scope of work, rights, and responsibilities of each party shall be subsequently negotiated, discussed, finalised and mutually agreed by both parties.
CEIG is a subsidiary of China Energy Engineering Corporation Ltd which is listed on the Hong Kong and Shanghai stock exchange, involved in solutions development to industries such as energy, power and infrastructure worldwide. Ranhill also intends to collaborate with CEIG for other potential projects in Southeast Asia.
A recap of the Djuanda project. The Djuanda project is Indonesia’s first source-to-tap water supply project with a capacity of 605MLD, supplying clean water from the Jatiluhur dam to four regions namely DKI Jakarta, Bekasi City, Bekasi Regency and Bogor Regency on a BOT basis (build-operate-transfer). Ranhill has a 74% stake in the project while other members of the consortium are PT Varsha (10%), PT PP Persero & PT PP Infrastruktur (15%) and Maynilad (0.16%). The project’s feasibility
study is currently being evaluated by the Indonesian regulators, in which if approved, will proceed to a tender process.
Removal of balance sheet overhang? While the Djuanda project looks attractive with a 30-year concession and an expected project IRR in the low to mid-teens, MIDF views the large potential capex of USD800-900m (RM3.8-4.3b) could be a constraint on Ranhill’s balance sheet. In contrast to Malaysia’s asset-light water industry model, the Djuanda project involves heavy asset ownership. MIDF said it understands that Ranhill had been exploring diluting its stake in the project down to an associate share. While still early days to conclude, the potential entry of CEIG as an equity partner could finally remove this balance sheet overhang.
Given it is still at an early stage, the house views this development as a mild positive and keeps its BUY call on Ranhill at an unchanged TP of RM0.80. MIDF said it continues to like Ranhill for its, expansion into RE and growth prospects under NETR and as one of the few plays in the domestic and regional water sector.
Potential near-term catalysts are the completion of its 50MW LSS4 project in December 2023, 100MW CCGT power plant in Sabah due for completion in 2026 and potential water tariff review for the domestic sector, which is long overdue. Dividend yield is attractive at 5.3% while valuations are undemanding at 15x FY24F PER, at 25% discount to historical mean.
