04-08-2025
- Business
- New Straits Times
Ranhill Utilities target price raised to RM1.70 on tariff hike, data centre prospects
KUALA LUMPUR: RHB Research has reaffirmed its BUY recommendation on Ranhill Utilities Bhd, raising its target price (TP) to RM1.70 from RM1.37, implying a 26 per cent upside.
The upgrade reflects improved earnings visibility following a water tariff hike in Johor and strong growth momentum from the state's booming data centre sector, the firm said.
RHB added that, backed by favourable regulatory changes, structural tailwinds in Johor's digital infrastructure push, and its strong execution track record, Ranhill Utilities remains a compelling long-term infrastructure player.
In a recent note, the research house said Ranhill stands to benefit from a combination of factors—new tariffs, rising demand from data centres, and the government's planned infrastructure push—positioning the group for multi-year growth.
It noted that the stock offers a modest 1 per cent dividend yield for the financial year ending June 2026 (FY26), with further upside potential from future contract wins.
The revision follows the announcement of a new water tariff structure by Ranhill SAJ (RSAJ)—Ranhill's 80 per cent-owned water subsidiary—effective 1 August 2025. The revision includes a new tariff category for data centres, aimed at supporting key infrastructure projects such as the Layang 2 Phase 2 (160 million litres per day—MLD), Semanggar (50 MLD), and Semanggar 3 (120 MLD).
RSAJ's tariff adjustments cover all user categories. For residential Band 3 and domestic bulk users, water rates are up by 8–11 per cent, or 20 to 35 sen per cubic metre (cu m). Non-domestic users will see increases of 3 to 51 per cent, with Band 2 users facing the steepest jump—from RM3.50/cu m to RM5.30/cu m.
A new pricing band for data centres has also been introduced at RM5.33/cu m, slightly higher than non-domestic Band 2 rates but still below Singapore's equivalent industrial rate of about RM5.80/cu m (inclusive of waterborne tax).
RHB Research estimates the revised tariffs will raise RSAJ's blended average tariff from RM2.56 to RM2.88/cu m in FY26F, reflecting an 11-month contribution. A full-year impact in FY27 is expected to lift tariffs further to RM3.14/cu m.
These changes prompted upward revisions to Ranhill's earnings forecasts, with FY26 and FY27 net profit estimates raised by 15.3 per cent and 23.4 per cent, respectively.
Additionally, the research house has revised its long-term water consumption growth assumption to 4 per cent from 3.5 per cent beginning in FY30, driven by growing demand from data centres and the Johor-Singapore Special Economic Zone (JS-SEZ).
According to DC Byte's July 2025 Market Spotlight Report, Johor currently has 487 MW of live data centre IT capacity, with another 324 MW under construction and 1,473 MW in committed capacity. RHB projects 300 MW of new data centre capacity to go online annually for the next six years.
As a result, data centres are expected to account for 8–15 per cent of RSAJ's non-domestic water consumption over the next three years.
Apart from tariff-linked gains, Ranhill is also expected to benefit from the government's National Non-Revenue Water (NRW) Programme, which has an RM2.5 billion allocation under the 12th Malaysia Plan (2025–2030).
Ranhill Technologies, the group's consultancy arm, previously secured a RM61.5 million contract in Kelantan in March 2022 to replace 103 km of ageing pipes and is well-positioned for similar projects under the NRW initiative.
Although no new jobs have been secured by the services division in FY24 so far, RHB believes the nationwide rollout of NRW-related works could reignite the group's project pipeline.
RHB's revised TP of RM1.70 is based on a sum-of-parts (SOP) valuation and includes a 4 per cent ESG premium, reflecting Ranhill's alignment with sustainability objectives.
However, the research house cautions that a slowdown in water consumption, particularly from industrial or residential segments, remains a key downside risk to its forecasts.
