Taliworks
KUALA LUMPUR: CIMB Equities Research says water catalysts could return in the second half of FY2017 for Taliworks if the RM500mil in water receivables is recoverable and if Air Selangor’s takeover of Syarikat Pengeluar Air Selangor (SPLASH) is resolved.
The research house had on Thursday it retained its Add recommendation, EPS forecasts and its fully diluted realised net asset value (RNAV) based target price of RM1.73, which remains pegged to a 10% RNAV discount. Its last traded price was RM1.47.
“Add retained, supported by a sustainable 5.4% yield. Medium-term catalysts include a resolution to the water deal. Downside risk is further delays in the recovery of receivables,” it said in the research note after a briefing by Taliworks top management.
CIMB Research also pointed out the extended October deadline for Air Selangor’s takeover of SPLASH is around the corner.
“During the briefing, we sensed a greater optimism on this issue. A final push to this resolution in order for the restructuring of the water services industry in Selangor to come to a close could be in store, in our view.
“After a lull in the newsflow in 1H17, there is now a bigger possibility that newsflow on the water deals will regain momentum in 4Q17, similar to the trends in the past.
CIMB Research pointed out that aside from the over RM500mil in water receivables related to its 100%-owned SSP1 that is recoverable, (likely to be settled over several installments) provided that the SPLASH acquisition issue is resolved, Taliworks’s net profit would also be substantially boosted by a potential writeback of the provisions related to the receivables, which, as at end-2Q17 stood at RM147mil.
“We note that this would be written back in full only if the receivables are repaid in one lump sum,” it said.
Taliworks’s annualised 1HFY17 core net profit (excluding provisions for water receivables) was 79% of CIMB Research’s full-year forecast and 3% above consensus.
“We deem the results broadly in line as we expect stronger construction and toll water earnings in the 2H,” it said.
The 1H17 increase in total group revenue was largely boosted by stronger progress billings for water contracts, particularly as a result of the upward revision of contract value for the construction of the Mengkuang Dam expansion in Penang.
The Mengkuang Dam subcontract package was secured in 2011 from China International Water and Electric Corp at an original cost of RM339mil.
For 1H17, construction revenue surged 44% on-year, compared to the 0.4%-2% increase for the water and toll operations.
Tolled highways revenue rose 2% on-year in 1H17, sustaining its steady momentum in 1Q17. This remains supported by subsidiary Cheras-Kajang Highway's tariff hike and a 3.8% increase in average daily traffic (ADT) to 140,000 vehicles.
For associate/JV Grand Sepadu, ADT decreased 1.9% on-year to 87.3k vehicles.
The higher ADT for Cheras-Kajang Highway was also partly due to the absence of construction activities for MRT 1 (SBK line).
“Not surprisingly, total highway EBIT declined 21% on-year due to higher amortisation expenses,” it said.
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