RANHILL: Earnings Outperform on Robust Water Demand and Strategic Initiatives
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Performance Review
The company’s IQFY26 core net profit reached RM31 million, significantly outperforming expectations. This figure accounted for a substantial 56% of TA Securities’ full-year estimates and 38% of consensus projections. The strong performance is primarily attributed to lower-than-expected investment holding costs and robust margins within the water segment.
Sequentially, core earnings saw an impressive 120% quarter-on-quarter increase. This surge was driven by a tariff hike implemented for Ranhill SAJ (RSAJ) effective August 1, 2025, alongside the absence of write-downs in the consultancy and services segment. Revenue also demonstrated solid growth, rising 17% quarter-on-quarter.
Future Outlook and Growth Drivers
The outlook for the company remains positive, particularly in Johor, which is set to benefit from a significant influx of data centre (DC) infrastructure. As the exclusive source-to-tap water supply operator in Johor, the company is well-positioned to capitalize on the increased water demand from DCs for cooling purposes. Current demand from DCs in Johor is estimated at 368MLD and is projected to rise to 586MLD by 2030.
The recent water tariff hike, effective August 1, 2025, is expected to serve as a key earnings catalyst, with RSAJ’s blended tariff estimated to increase by 18% to RM2.89/m³. Crucially, accompanying water infrastructure expansion will further enhance the company’s ability to meet this growing DC-driven demand.
In the power segment, the company is actively exploring opportunities within the Corporate Renewable Energy Supply Scheme (CRESS) and is participating in a tender to develop a 4x100MW/400MWh Battery Energy Storage System (BESS).
Potential Headwinds
Despite the positive outlook, a potential headwind is the federal government’s initiative for DCs to explore reclaimed water as an alternative source in Johor. The growth of such alternative water sources could potentially reduce the future demand for potable water supplied by RSAJ for DC cooling purposes.
Investment Recommendation
TA Securities has maintained its “BUY” recommendation for the company, raising its sum-of-parts derived target price to RM2.18 from RM1.59 previously. The firm views the company favorably as a key beneficiary of demand driven by data centres and the Johor-Singapore Special Economic Zone (JS-SEZ).
