It said on Wednesday the results in line as 2H16 should surge on new profits from newly acquired Southern Waste Management (SWM).
“Water and tolled highway remain key earnings drivers amidst low order book. Water deals and more visibility in water infra tender could be catalysts in 2H16. Its 5.5% dividend yield remains the main appeal. Add retained,” said the research house.
CIMB Research said the annualised 1H16 core net profit (excluding the RM66mil net gain from asset disposal) made up 60%-62% of our and consensus full-year numbers. The results were broadly in line given the incoming maiden profits from newly-acquired SWM.
“SWM contributed only RM1.8m in net profit in 2Q16. We expect RM16mil earnings uplift in 2H16 from SWM. The second interim single-tier DPS of two sen brings the total year-to-date to four sen and was in line, on track for a full-year payout of eight sen,” it said.
The research house said excluding the impact of the provision for discounting on deferred payment consideration in relation to water ops SSP1, pretax profit for the water division grew 12% on the back of stronger water demand and a 2.5%-5.9% increase in metered sales for both Langkawi and SSP1.
The highway division’s more robust 73% on-year earnings growth in 1H16 was due to the toll rate increase for 51%-owned Cheras-Kajang Highway. The drop in construction earnings was not a surprise due to depleting order book.
“Water receivables relating to SSP1’s operations stood at RM440.3mil, and are likely to be recovered once the acquisition of the remaining water operations in the state are resolved. The next cut-off date for new developments is in October.
“Management said even if the receivables are recovered on a staggered payment basis, special dividend is still a possibility which is good news. Management remained cautiously optimistic about the prospect of the water deals, which could still materialise in 2H16.
“With only the RM75.9mil water project in hand, the impact of order book depletion in the coming quarters could be more pronounced; however, we expect this to be largely offset by new higher-margin earnings stream from associate SWM.
“Management guided that at the company level, SWM is on track to achieve RM900m in revenue for FY16 with a potential double-digit tariff hike in 2018. Taliworks will be positioning for new tenders and opportunities to undertake new water infra related contracts in the next 6-12 months,” said CIMB Research.