Ranhill expected to participate in new tender in 3Q

TheEdge Fri, Aug 16, 2019 10:58am - 4 years View Original


Ranhill Holdings Bhd
(Aug 15, RM1.30)
Maintain buy with an unchanged target price (TP) of RM1.45:
Ranhill Holdings Bhd registered a core net profit of RM20 million for the second quarter of financial year 2019 (2QFY19), bringing first half (1H) of FY19 core earnings to RM44 million after normalising for RM4 million net exceptionals recognised in 1HFY19 — accounting for 52% of our FY19 forecast. No dividends were declared for the quarter. Overall, earnings were up 23% year-on-year (y-o-y) for 2QFY19, driven by growth of the water division. On a sequential basis, earnings contracted 15% quarter-on-quarter as 1QFY19 reflected a one-off contribution from the handover of the Forest City sewerage treatment plant (STP) project.

Meanwhile, 2QFY19 earnings for the water division were up 38% y-o-y, driven by higher water consumption at 80%-owned SAJ, on top of lower unwinding of interest as SAJ is now in the second year of its three-year operating period. Growth would have been stronger had it not been for the deferment of a federal non-revenue water (NRW) tender and deferred STP projects in Forest City (on top of the one already completed), which were previously in the pipeline. As for the power division, the improvement at SAJ was slightly offset by a decline (-7% y-o-y) in power division earnings. Ranhill Powertron 2 (RP2) is facing low load factor given the overcapacity in west Sabah, which is impacting earnings negatively. RP1, however, is utilised as baseload capacity and is not really impacted by the situation. The construction of a stronger grid connecting west to east Sabah (currently ongoing and expected to be completed by 2021) is expected to double the grid’s capacity and increase the dispatch from west Sabah independent power producers. This bodes well for RP2’s load improvement in the midterm.

There was a federal tender for RM500 million worth of NRW contracts for seven critical states (including Perlis, Kelantan, Kedah and Pahang) with high NRW previously, but this had been deferred for the tender to be restructured, we understood. A new tender is expected to be out in the third quarter of 2019 (3Q19) and Ranhill is looking to participate in it. Nevertheless, from 3Q19, the recently won RM151.5 million Johor NRW contract (running from July 1, 2019 to June 30, 2021) is expected to kick in.

Though already approved, Ranhill has yet to implement the dividend reinvestment plan (DRP). It would be looking to initiate the DRP once the capital expenditure requirement is raised, driven by current expansion initiatives (for example, the Kedah combined cycle gas turbine [CCGT] and water operation expansion). In the meantime, the management is looking to sustain the current cash dividend.

We reaffirm our “buy” call on Ranhill with an unchanged TP of RM1.45. Key catalysts include: i) progress in the 1,150mw Kedah CCGT power exports to Thailand; ii) a scheduled rate hike for Johor water; iii) Johor water-sewerage integration; iv) RM500 million NRW-reduction contract wins; and v) a successful bid for Large Scale Solar 3. — MIDF Research, Aug 15

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