This article first appeared in The Edge Financial Daily on May 6, 2019
Ranhill Holdings Bhd
(May 3, RM1.17)
Maintain buy with an unchanged target price of RM1.35: Ranhill reported a core net profit (CNP) of RM24 million for its first quarter of financial year 2019 (1QFY19). The core earnings were in line, but at the higher end of our estimate accounting for 29.8% of our forecasted FY19F of RM80 million.
Group CNP increased 7% year-on-year (y-o-y) on the back of a 12% improvement in revenue; the latter was driven by both the environment and power divisions. No dividends were declared for 1QFY19.
Our core earnings calculation normalises for: (i) A RM3.5 million impairment for Ranhill’s part payment for shares in SM Hydro Energy — previously supposed to undertake a Sandakan CCGT power plant project which has now been cancelled. A total of RM7 million which was involved in the deal has now been fully impaired, and (ii) unrealised forex gain of RM1 million.
Power division revenue was up 12.3% y-o-y but pre-tax earnings contracted 26%. The former was driven by higher diesel consumption, but fuel payment is a cost pass-through with no actual impact on earnings. Additionally, Ranhill Powertron 2 (RP2) was impacted by higher cost due to a scheduled hot gas path inspection maintenance work in the quarter.
The environment division (comprising Ranhill’s water business) registered a 12.5% y-o-y revenue growth while pre-tax earnings grew 6.5% y-o-y. This was driven mainly by a natural increase in water consumption (2% to 4.5% annual growth in the past five years), on top of lower unwinding of interest as Ranhill SAJ (SAJ) enters into the second year of its three-year operating period.
The ministry of water, land and natural resources has been lobbying for a water tariff hike. SAJ is also understood to have submitted a proposal to raise tariffs involving second- and third-band usage (currently at RM2 per cu m and RM3 per cu m for domestic consumers) while the first band (comprising the first 80 cu m of usage) is unlikely to have been proposed an increase.
Pengurusan Aset Air Sdn Bhd late last year approved a RM3.4 billion capital expenditure for Ranhill to reduce Johor non-revenue water to 5% by 2025 from the current 24%.
We leave our projections unchanged at this juncture. — MIDF Research, May 3