RHB Research has assigned a fair value of RM4.20 to Ranhill Utilities Bhd, citing stronger earnings following Johor’s water tariff restructuring and long-term opportunities from the state’s expanding data centre and industrial sectors.
The research house said Ranhill’s earnings prospects have improved substantially following the August 2025 tariff revision, which introduced a dedicated RM5.33 per cubic metre rate for data centres. The revised tariff structure has increased revenue collection at its water operating subsidiary, Ranhill SAJ, while providing additional capacity to fund infrastructure investment.
RHB expects rising water consumption to reinforce the earnings contribution from higher tariffs, particularly as Johor attracts more data centre developments and industrial investment.
According to the research house, Johor has approximately 8.5 gigawatts (GW) of incoming data centre capacity, in addition to 1.1GW of operational IT capacity. It estimates that the developments could eventually generate water requirements of about 400 million litres per day (MLD), providing a significant long-term volume growth opportunity for Ranhill SAJ.
The Johor-Singapore Special Economic Zone (JS-SEZ) and continued industrialisation are also expected to support water consumption in the state.
RM3.5 Billion Water Treatment Investment Opportunity
RHB said Johor’s rapid development has increased the need for additional water treatment and distribution infrastructure, particularly with the state’s water reserve margin estimated at just 12.8%.
The state has identified 38 water infrastructure projects worth RM15.3 billion for the 2025–2050 period, while Ranhill is expected to develop three water treatment plants involving approximately RM3.5 billion in capital expenditure under an IWP structure.
RHB estimates that the proposed plants could contribute RM100 million to RM150 million in annual earnings over their first five years, subject to the projects proceeding as anticipated.
Confirmation and implementation of the projects would provide greater visibility over Ranhill’s longer-term earnings beyond its existing water supply operations.
At the national level, the research house also sees opportunities arising from water infrastructure renewal and non-revenue water (NRW) reduction initiatives.
Under the 13th Malaysia Plan, the federal government has approved RM1.7 billion to replace approximately 1,800 kilometres of critical water pipes between 2026 and 2030, supporting efforts to reduce losses from ageing infrastructure.
RHB expects Ranhill to benefit from its capabilities in water treatment, NRW management, engineering and construction. Its water subsidiary is also expected to continue benefiting from performance-based matching grants that reimburse between 50% and 75% of eligible NRW mitigation expenditure.
Earnings Recovery Strengthens Valuation Case
Following the tariff restructuring, RHB said Ranhill’s core profit margins improved to 13.2%–15.7% during 2Q–4QFY26, compared with 7.1% in FY25.
The group’s net gearing also declined to 15.2% from 62.8%, reflecting a stronger balance sheet and improved cash generation.
RHB forecasts earnings of RM301 million in FY27 and RM306 million in FY28, before accounting for potential further tariff adjustments under the 2027–2029 operating period, additional water demand and earnings from prospective NRW projects.
Despite the recovery, the research house said Ranhill was trading at approximately 11.9 times calendar year 2027 earnings, representing a 35%–50% discount to utility peers on CY26–CY27 valuations.
Its RM4.20 fair value is based on a price-to-earnings multiple of 18 times CY27 earnings, in line with the peer average used in its valuation.
RHB said further earnings upside could emerge from the proposed water treatment plants, additional water-related contracts and sustained growth in demand from Johor’s industrial and data centre developments.
