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Tailwinds in Ranhill’s Renewable Energy Prospects
Ranhill Utilities emerged as one of the successful bidders in the Large Scale Solar 4 (LSS4) auction. The LSS4 programme is a crucial component of Malaysia's renewable energy expansion plan as it aims to accelerate the deployment of large-scale solar projects across the country to increase the adoption of solar energy into our country’s energy mix. Ranhill’s expansion into solar via its 50 LSS4 solar farm continues to see steady progress during the year and is expected to enter its COD phase by 31 December 2023, with a revised concession period of 25 years, from the original 21 years.
The experience gained from the successful bidding process as well as undertaking of the EPCC works will hold Ranhill in good stead in bidding for similar LSS projects, both locally and abroad. The company's participation in this program not only highlights its commitment to renewable energy but also positions it as a player in the country's solar power sector.
Several tailwinds continue to provide support for the development of the renewable energy (RE) space:
1) Malaysia's Energy Capacity Target
In line with global efforts to combat climate change, Malaysia has set an ambitious target to achieve carbon neutrality with a RE generation capacity of 70% by 2050, from the current 25%. The government aims to achieve this by proactively encouraging the diversification of our energy mix to include more renewable energy sources particularly solar due to our geographic advantage of being a tropical country.
According to the International Renewable Energy Agency (Irena), Malaysia would require an investment of RM637bil up to 2050 to increase our RE capacity. This transition presents vast opportunities for our local renewable energy developers, creating a favourable environment for companies like Ranhill to expand their renewable energy portfolios.
2) Corporate Green Power Programme (CGPP)
The National Energy Policy 2022 introduced the CGPP to facilitate corporate engagement in green energy consumption and the reduction of carbon emissions. The program encourages collaboration between solar power producers and commercial consumers, enabling the commissioning of new solar power generation capacity.
Under the CGPP a virtual power purchase agreement (VPAA) mechanism allows Corporate Consumers (CC) to purchase renewable energy virtually from Solar Power Producers (SPP).
The SPP and CC can agree in the VPPA that the environmental attributes for the energy purchased will be transferred to/vest in the CC.
Furthermore, a key financial feature of the CGPP is that if the System Marginal Price (SMP) is higher than the CGPA price, the SPP will pay the CC the difference and vice versa. This creates a hedge for the prices of electricity due to the fixed nature of the CGPA. This internal mechanism will be able to provide some stability from the fluctuation on electricity prices for both parties.
By actively participating in the CGPP, corporations can enhance their ESG credentials by reducing their carbon footprint and supporting renewable energy development. In turn, Ranhill will be able to protect its profitability and mitigate volatility in prices and ensure consistent returns as well as increase its ESG premium.
3) ASEAN Power Grid and the lifting of RE exports
Malaysia's commitment to renewable energy continues to extend beyond its borders. The country is actively engaged in the development of the ASEAN Power Grid, a sub-regional energy trade initiative aimed at promoting interconnectivity and clean energy sharing, with the goal of creating a multilateral energy market. Significant advantages are anticipated from an ASEAN power grid that is interconnected, including lower costs and the capacity to pool different renewable energy sources from nations with superior natural resources and supply nations with significantly less resources.
In recent developments the feasibility of the of the project has become a reality as evidenced by the Laos PDR, Thailand, Malaysia, Singapore Power Integration Project (LTMS-PIP) which saw Singapore import 100MW of clean hydropower from Laos via Thailand and Malaysia through existing interconnections.
With Malaysia lifting restrictions on renewable energy exports, companies like Ranhill can seize potential export opportunities, especially in neighbouring countries such as Singapore and Thailand. Singapore has already announced plans to import more clean energy, Singapore’s Energy Market Authority (EMA) has been working on paving the way for larger scale electricity imports of up to 4GW by 2035, creating a potential market for Malaysian renewable energy producers.
Malaysia and the ASEAN region is stepping up its efforts to transition towards a greener and more sustainable energy landscape. With a strong focus on renewable energy and corporate engagement, our country is making significant strides in achieving its long-term environmental goals.
Malaysia and the ASEAN region is stepping up its efforts to transition towards a greener and more sustainable energy landscape. With a strong focus on renewable energy and corporate engagement, our country is making significant strides in achieving its long-term environmental goals.
In conclusion, Malaysia's green energy initiatives, including the LSS4 program, its ambitious energy capacity targets, the CGPP, and participation in the ASEAN Power Grid, reflect the government's proactive stance in driving sustainable growth. These initiatives not only foster the transition to renewable energy but also create opportunities for Ranhill to capture new opportunities and thrive in the burgeoning renewable energy.
Following the latest quarterly results, Ranhill Utilities Berhad appears to be on a steady course for a potential rebound in FY23. The company's prospects look promising, and several developments are expected to uplift the company's outlook.
Here are some updates on the key factors that could drive Ranhill's growth in the upcoming year.
1) Tariff Hike Expected to Boost Earnings in FY23
Ranhill's subsidiary, Ranhill SAJ Sdn Bhd (RSAJ), has begun recognizing the backdated July 2022 gazetted tariff adjustments for Aug-Dec 2022 period. As per the adjustment, the rate for the first 35m3/month has been raised to RM3.10/m3 (from RM2.80/m3), and that of subsequent consumption is raised to MYR3.50/m3 (from RM3.30/m3). This adjustment is expected to lead to an increase in earnings of approximately RM10 million for FY23, according to a report by RHB.
2) Healthy Cash Flow from NRW Matching Grant Receipt
Ranhill has qualified for the Non-Revenue Water (NRW) reduction incentives for FY21, enabling it to recognize a reduction incentive of RM142 million in FY22. The disbursement of the RM142 million grant is expected in FY23 Q2, which will further boost Ranhill's cash flow and could lead to a potential boost in dividend payout for FY23. A simple back of the envelope calculation shows that RM142 million would yield 10 sen dividend per share, translating approximately 20% dividend yield from its current share price.
As per a report by RHB, Ranhill is the most efficient water operator in Malaysia as Johor has the lowest NRW per km of 17.2cu m/km/day. Therefore, it is highly likely that Ranhill will meet the NRW target for FY23 and qualify for the NRW incentive.
3) NRW Incentives Under the 12th Malaysia Plan
The 12th Malaysia Plan has allocated RM1.37 billion under Approach 2 for matching grants to assist water operators in states that has less than 40% NRW rate. Seven state water operators, including Ranhill in Johor are implementing Approach 2, thereby presenting an opportunity for Ranhill.
With the company’s impressive history of reducing NRW, it is anticipated that Ranhill will meet the criteria for the NRW incentive under Approach 2, thus further enhancing its cash flow position.
4) Progression of the Indonesian Djuanda Water Project
According to a report by RHB, the Indonesian Djuanda source-to-tap water project, with an estimated treatment capacity of 605m litres/day (MLD) and USD700-800m capex, is in its final feasibility study. Once accepted by the Indonesian Government, Ranhill will be accorded Initiator Status, which gives it the 'Right-to-Match' privilege as the project enters into the public tender process. Upon completion, the water project is expected to provide clean water access to 3.9 million residents around the Greater Jakarta area, including DKI Jakarta, Bekasi City, Bekasi Regency, and Bogor Regency.
The concession period awarded for this project is estimated to be 30 years, which is a significant boost for Ranhill's bottom line. The successful execution of this project could also open the door for Ranhill to new water project opportunities in Indonesia in the long term.
5) Successful bid for new 100MW CCGT plant in Sabah
Ranhill Utilities and Sabah Energy Corporation's 60:40 consortium won the bid for a 100MW CCGT power facility on Sabah's west coast. The facility has a 21-year PPA with Sabah Electricity and set to begin commercial operation date on 1 March 2026. According to MIDF, it is estimated that the new plant could generate incremental equity value of 11sen/share based on Ranhill’s 60% stake. Ranhill's new plant will expand its power capacity in Sabah by 26%, making it the largest IPP with 30% market share.
According to the Sabah Electricity Supply Industry Outlook 2019, peak energy demand is expected to grow 14% to 1,080MW in 2029, resulting a reserve margin of mere 3%, far lower than the 23% currently. Therefore, Ranhill is proposing to extend the PPA of its existing RP1 power plant by eight years to 2037 to meet Sabah’s growing energy demands. Coupled with the expected completion of the Southern Link project this year, it will enable RAHH to distribute more electricity to the east coast through its existing power plants and hence increase its revenue.
In summary, the recent developments are a positive sign of Ranhill's growth potential. I anticipate the company to experience a re-rating, as these factors have not been fully priced in, along with a potential dividend bump from the government grant. In uncertain times like these, Ranhill's defensive nature is a good fit for investors.
The light at the end of the tunnel seems to be getting closer.
Last year AT ventured into glove business, focusing on manufacture and sale of medical gloves. The plant is at Chemor, Perak which the land size approximately 4 acres. They have completed the phase 1 which has 6 globe production lines. Next, the remaining 4 lines most likely will be completed by this month or October? For the last quarter, there’s revenue contribution from the glove sector which is RM8.1 million. Looking forward for the upcoming results. People are skeptical cause the ASP has been dropping. While for me if you have to look at the current pandemic, there’s still demand for glove. with the current share price, if the revenue and profitability for glove is showing in the upcoming result, you know the share price won’t be at this price. Just my thought. hahah