Update 5 August on Ranhill & YTL Power

US stocks jumped Monday as investors clawed back the steep losses seen in last Friday session that were sparked by concerns over the US economy and a new round of tariffs from the Trump administration.

The Dow Jones soared 585.06 points while the S&P 500 advanced 1.47%. The Nasdaq surged 1.95% on share price rally of Nvidia.

Stocks sold off last Friday after a weaker-than-expected jobs report that featured heavy revisions to May and June employment figures. Soon after the release, President Trump fired the head of the Bureau of Labor Statistics. Trump later said he would be naming a new BLS commissioner in the coming days.

Jitters about Trump’s new modified tariff rates further rattled markets. Trump signed an executive order late last week that updated his reciprocal tariffs on dozens of US trading partners, ranging from Syria to Taiwan, with updated tariffs ranging from 10% to 41%.

With little on the economic data front this week, investors will be eyeing any trade developments between the US and China after senior officials from both countries met in Stockholm, Sweden last week. Treasury Secretary Scott Bessent told CNBC Thursday that “we have the makings of a deal.”

The market is bracing for a historically weak month. August is the worst month for the Dow Jones in data going back to 1988, and the second worst for the S&P 500 and Nasdaq, according to the Stock Trader’s Almanac.

Trump’s trade deals aren’t just about tariffs

The New York Times, August 5, 2025

As dozens of countries race to reach trade deals with the U.S. ahead of a Thursday deadline, President Trump has embraced a strategy that goes beyond the usual focus on markets and deficits: He’s demanding multibillion-dollar investments in the U.S.

The president’s tactics echo his “Art of the Deal” approach. He is using economic leverage to essentially force trading partners to show him the money or face astronomical tariffs.

To trade experts, the commitments raise the question of whether Trump is negotiating with trading partners or trade hostages. Here are a few examples.

• To secure a lower tariff rate in its deal, South Korea agreed to make $350 billion in investments in the U.S. and buy $100 billion of liquefied natural gas.

• The E.U indicated that it would buy $750 billion of American energy and that its companies were poised to invest at least $600 billion.

• Japan said it would establish a $550 billion fund for investments in the U.S.

Trade experts cautioned that focusing on the eye-popping investment figures might be premature. Tariffs are easier to enforce than investment and purchase commitments, and their vague nature suggests that countries might be looking for creative ways to escape Trump’s tariffs. Some of the pledges appear too big to be true, and many of them lack specifics.

More tariff news:

• India: The foreign ministry said Trump’s threat of additional tariffs was “unjustified and unreasonable” and vowed to “take all necessary measures” to safeguard India’s interests.

• Malaysia: The country’s solar panel industry, which was decimated by tariffs under the Biden administration, provides a warning for the region.

Nvidia stock price target maintained at $220 by BofA ahead of earnings

BofA Securities has reiterated its Buy rating and $220.00 price target for Nvidia ahead of the company’s second-quarter earnings report scheduled for August 27. According to InvestingPro data, Nvidia currently trades near its 52-week high of $183.30, with the stock showing remarkable momentum through a 62% return over the past year.

The firm expects Nvidia to report second-quarter sales of $47 billion, exceeding both the consensus estimate of $45.8 billion and the company’s guidance of $45 billion, driven by the continued ramp of Blackwell architecture and robust cloud spending. This growth trajectory aligns with the company’s impressive 86% year-over-year revenue growth and excellent financial health score revealed by InvestingPro’s comprehensive analysis.

BofA anticipates Nvidia will raise its third-quarter guidance to approximately $54 billion, representing mid-teens sequential growth compared to the consensus estimate of $52.5 billion, with potential to reach $57-60 billion if H20 chip shipments to China officially resume.

Gross margins are expected to approach 73-74% by the third quarter as rack-scale architecture gains scale, with a potential additional 200-300 basis points boost if H20 utilizes previously written-off inventory valued at $5.5 billion in the first quarter.

For fiscal year 2026, BofA projects Nvidia’s sales outlook could rise toward $210-215 billion (including China) with earnings per share up to $4.70-4.80, compared to the consensus estimate of $4.38, though the firm notes H20 sales may face security probes by Chinese regulators and increasing local competition.

In other recent news, Nvidia has been summoned by Chinese regulators to address security concerns related to its H20 AI chips. The meeting, led by China’s Cyberspace Administration, was prompted by claims from US lawmakers about potential tracking capabilities in advanced chips exported internationally. Additionally, Nvidia is set to announce its second-quarter fiscal year 2026 financial results on August 27, 2025, which will be accompanied by a conference call to discuss the company’s performance for the period ending July 2025.

Morgan Stanley has adjusted its price target for Nvidia, increasing from $170 to $200 while maintaining an Overweight rating. The investment bank highlighted strong demand for Nvidia’s Blackwell architecture, noting that growth in token usage is surpassing the company’s shipping capabilities. In other developments, OpenAI has announced plans for Stargate Norway, a significant AI data center in Europe, which will utilize 100,000 Nvidia GPUs by the end of 2026. This project is part of OpenAI’s initiative to expand its AI infrastructure, leveraging Norway’s renewable energy resources.

My take: It is amazing to see that Nvidia share price has surpassed $180 and market cap approaching $4.4 trillion, a remarkable turnaround from the slump in early April. Nvidia share price has rallied some 80% from its low points in early April, in comparison YTL Power share price has rebounded just ~40% in the same period.

Analysts’ tone has changed to bullish on Nvidia’s outlook, with bullish projection for a mid-teens QoQ growth of revenue to $54 billion for its Q3. The US markets are much more efficient than Bursa, in that the share price of a stock effectively reflects the company’s fundamentals and outlook in a timely manner.

Back home, due to the lack of participation from foreign funds, retailers and local funds have a greater participation and influence in stock price movements, often manipulating the share price to achieve certain agenda. For instance, short selling activities organised by a business rival may depress the share price of a great stock for weeks. Furthermore, the irresponsible actions by certain call warrant issuer banks also help to depress the share price of a stock before the expiry of the call warrants.

We have a YTL Power call warrant issued by Ambank expiring on 14 Aug and another issued by CIMB expiring on 29 August. If these issuer banks have not hedged fully on the call warrants by holding sufficient mother shares, they will try their best to press down the share price of the YTL Power mother share in the last 5 days of the call warrant expiry so as to depress the cash settlement price for the expiring call warrants. And I would bet my bottom dollar that these issuer banks will not report on any good news of YTL Power or issue any good update report on YTL Power by their respective research house.

That is the reason why we have not seen any analyst from any such investment bank that has issued call warrants on YTL Power to issue a good report or update on any of the following good news around YTL Power:

• the dark fibre projects in Johor-Singapore that are gaining tractions with increasing enquiries from data centre operators for fast fibre connectivity

• the strategic agreement signed recently with Nvidia to make Malaysia an AI hub for ASEAN

• the WTE project in Rawang that will soon get the final approval to proceed

• the water tariff revisions announced by the government last week that has included a data centre sub-category at RM5.33/m3 (only RHB covered this)

Though we have strong support from local institutional funds like EPF, but the collective actions by these call warrant issuer banks and short sellers can overwhelm any buying effort by EPF alone especially in the week before any call warrant expires. Things will change if we see foreign funds buying into YTL Power stock again, especially when the company announces a good set of results for its Q4 FY2025 in late August or secures more AI data centre deals in coming months.

I see the current share price consolidation as a good chance to accumulate more or to gain entry if you have missed the last round of entry opportunities in early June. Buy at RM4.10-4.00.

Ranhill to be re-rated soon

As posted yesterday in a flash post, Ranhill SAJ has published the new water tariff rates as gazetted by the government last week. The all-important thing to look out for is the new water tariff rate for data centre subcategory, which has been set at RM5.33/m3. That is slightly higher than the non-domestic band 2 rate of RM5.30/m3.

As calculated yesterday, the new tariff rate for data centre will enable Ranhill to make an additional operating profit of about RM250 million in FY2026 for 11 months of contribution from 1st August 2025. I estimate that the revision will add some RM200 million of pretax profit to Ranhill in FY2026, adding to its c.RM70m of annual pretax profit. Assuming a taxation rate of 35% (40% for 15M FY2025, 30% for FY2023), I estimate that Ranhill may achieve a net profit of RM270m x 65% = RM175 million or EPS of 13.5 sen.

Applying a 10-year average PER of 20x, Ranhill may be re-rated to RM2.70 in next 12 months.

On the other note, BIMB yesterday issued an update report on the water sector after the water tariff revision. The report mentions that Johor alone requires an estimated RM6.8 billion in capital investment by 2030 to reduce non-revenue water (NRW), meet rising demand and ensure long-term supply resilience, according to the roadmap outlined by Ranhill SAJ Sdn Bhd, an 80%-owned subsidiary of Ranhill Utilities Bhd. That is much higher than my earlier estimate of RM3-4bil of capex requirements, as it will likely include more investments by PAAB in replacing old water pipes and extending the underground water piping network in the state. For such a big capital investment, we will need the water tariff for data centre subcategory to be revised further up to above RM7.00/m3 in 2026 or 2027.

Net short positions on YTL Power decreased by 900k shares to 33.6m shares at close Monday while net short positions on YTL increased by 600k shares to 38.6m shares.