What’s new?

The Cabinet has gazetted a water tariff hike effective 1 August 2025. For the state of Johor, the water tariff hike will affect mainly non-domestic users, including a new category for data centres (DC), while for the domestic segment, only high consumption users and domestic bulk users will be impacted. According to Ranhill SAJ (80%-owned by RANHILL), the adjustments are necessary to support modernisation of Johor’s water supply system and fund key upgrading projects, including the second phase of the Layang 2 package with a capacity of 160MLD as well as Semanggar (50MLD) and Semanggar 3 (120MLD).

In summary, the increase in water tariff for the non-domestic segment ranges between 31.7% and 49.3%, while minimum monthly charges were increased by 31.7%. Meanwhile, DCs will be charged RM5.33/m³ (which is slightly higher than the highest band for non-domestic users) with a minimum monthly charge of RM53.30. For the domestic segment, tariff for the 3rd usage band (>35m³ consumption) is increased by 11.1% while domestic bulk users will see a 7.8% increase (see Figure 3).

A shot in the arm for RSAJ

Following the underlying tariff revisions, we estimate Ranhill SAJ’s (RSAJ) blended tariff to ultimately increase by 18% to RM2.89/m³. More importantly, the accompanying water infrastructure expansion will unlock RSAJ’s ability to meet DC driven demand going forward. Based on Johor’s live DC capacity of 487MW (see Figure 2), we estimate DC water demand currently accounts for around 8% of Johor’s aggregate consumption (or circa 122MLD). Should the Johor-based DCs under construction (324MW) and committed capacity (1,473MW) materialise, we estimate water demand could rise multi-fold to circa 570MLD. At this juncture however, our projection conservatively assumes Johor’s DC capacity to hit just under 1GW by 2030, with aggregate consumption growing at a CAGR of 4.1% between 2025 (annualised) and 2030.

Figure 1: Johor DC Capacity

Category Capacity (MW)
Live 487
Under construction 324
Committed 1,473
Early Stage 3,491

Source: DC Byte, TA Securities

Notwithstanding the tariff hike, Singapore’s non-domestic water tariff is still 10%-103% higher than Johor’s highest band for the non-domestic sector. As such, we believe the latest tariff hike is unlikely to compromise Johor’s competitiveness in attracting inbound investments from Singapore.

Figure 2: Johor and Singapore Non-Domestic Water Tariff

SG Non-Domestic Johor Non-Domestic Johor Data Centre
Potable NEWater Industrial
SGD/m³ 3.24 2.50 1.75 N/A N/A
RM/m³ 10.76 8.30 5.81 4.15-5.30 5.33

Source: Ranhill SAJ, PUB, TA Securities

Earnings Revision

We raise RANHILL’s FY26F-27F net profit by 14%-20% to reflect the latest water tariff hike at 80%-owned RSAJ.

Valuation and Recommendation

Maintain Buy at a higher sum-of-parts derived target price of RM1.56 (from RM1.40 previously) following the earnings revision. We continue to like RANHILL as a proxy to DC and JS-SEZ driven demand, being the exclusive water operator for Johor.