Ranhill’s FY18 in line with expectations

KUALA LUMPUR: Ranhill Holdings Bhd’s (Ranhill) net profit of RM45.5 million for the financial year 2018 (FY18) met expectations, despite the one-off impairment of its 26.7 per cent stake in Tawau Green Energy (TGE) in the fourth quarter of 2018 (4Q18).

The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that the TGE impairment was marginally higher as Ranhill also provided for some advances to TGE.

However, it does not expect any more significant impairment on TGE going forward.

“FY18 revenue growth (5.5 per cent) was mainly driven by the water segment (seven per cent y-o-y) given growth in volume of consumption at 80 per centowned Ranhill SAJ.

“SAJ’s pre-tax is lower by 19 per cent y-o-y given the effect of unwinding of interest charge (the process of reversing the difference between the present value of service concession assets and fully accrued service concession obligations) for SAJ which tends to be frontloaded and tapers off over the concession period – in this case, Ranhill SAJ’s threeyearly water operator license (OP4: Operating Period-4) which was renewed effective January 2018.

“Since the licensing regime is short compared to a typical concession, the impact of unwinding of interest can be pronounced.

“Given the imbalance in recognition of unwinding of interest charges in FY17 reflected the final year of Ranhill’s OP3 hence is the lowest in that licensing cycle whereas FY18F reflects the first year of its OP4 hence is significantly higher, earnings showed a decline,” MIDF Research explained.

It further noted that Ranhill’s power division saw flattish revenue growth but earnings improved due to lower maintenance overheads.

Overall, MIDF Research reaffirmed its ‘buy’ call on Ranhill as it factored in the potential integration of the Johor sewerage project.

“Our valuation of Johor sewerage at this juncture is conservative, assuming charges are maintained at current levels without a switch to volumetric tariff. Inline with this, our FY20F is raised by seven per cent to factor in potential earnings accretion from Johor sewerage,” it added.

Other key catalysts include a scheduled rate hike for Johor water, Johor water-sewerage integration, RM500 million NRW-reduction contract wins, and progress in 1150MW Kedah CCGT power export to Thailand.