HLIB maintains 'buy' on Taliworks, trims target price to RM1

KUALA LUMPUR (May 14): Hong Leong Investment Bank Research (HLIB Research) has maintained its “buy” rating on Taliworks Corp Bhd with a target price of RM1 (from RM1.02 previously) despite its first quarter results for the financial year ending Dec 31, 2020 (FY20) being below expectations.

“We like the stock for its defensive earnings profile and potential upside to our estimated dividend yield of 7.2% for FY20-21,” it said in a research note today.

On an annual basis, the group’s core earnings rose 6% to RM12.5 million while its revenue declined 5% to RM84.3 million.

"The core earnings accounted for 18% of our full year forecast (consensus: 16%) which is below expectations,” said HLIB Research.

Its 1QFY20 core earnings were adjusted for dividends from investments designated at fair value amounting to RM3.4 million as cash from previously securitised SPLASH receivables were deployed as investments.

HLIB Research attributed the results shortfall mainly to slower construction progress billings as works could not be carried out during the Movement Control Order (MCO), as well as lower traffic volume on its tolled highways.

Meanwhile, revenue for its water segment dipped 2% year-on-year largely due to lower bulk sales rate (BSR), which dropped by 5 sen to 41 sen per cubic metre for SSP1 in Selangor under the new bulk water supply agreement (BWSA) executed in September last year.

“The BWSA will see a 2.4% BSR hike in 2023 with subsequent hikes coming in 2028 (+4.2%) and 2030 (+5%),” it noted.

HLIB Research pointed out that interestingly, its average million litres per day rose by 1.8% per annum despite the MCO as higher household water consumption offset weaker commercial and industrial demand.

“We reckon its resilient water segment will support Taliwork’s cash generating capacity despite the MCO,” it said.

It also noted that the end of its Langkawi water concession in October will be offset by the cash payment from water sales under the BWSA in Selangor.

HLIB Research cuts FY20-21 earnings by 8.4% and 0.6% after imputing lower traffic volume estimates to account for the lockdown.

At 9.44am today, Taliworks' share price rose 3.5 sen or 4.22% to 86.5 sen for a market capitalisation of RM1.67 billion.