Taliworks to outperform on strong cash flow, possible Langkawi concession extension

KUALA LUMPUR: Taliworks Corp Bhd's strong recurrent cash flow is expected to help the counter outperform in the current volatile and low interest rate environment, boosted further by a possible extension in its Langkawi concession.

According to Affin Hwang Capital research, the company's forecast net dividend payout of 6.6 sen per share in 2020 to 2022 give it an attractive net yield of 7.9%.

The payout is sustainable given Taliworks' strong cash balance of RM536mil or 27 sen a share as at March 31, it said, while reiterating its buy call on the counter with a target price of 96 sen.

"The group’s RM391m debts are mostly non-recourse project financing for its Grand Saga toll highway concessions.

"Its water supply and toll highway concessions generate recurrent earnings and cash flows to support its high dividend payout," it added.

The research house forecasts the company's core operations to generage average free cash flow of RM92mil or 4.5 sne a share in 2020 to 2022.

Meanwhile, Affin Hwang sees the possibility of Taliworks Langkawi concession to be extended for an interim period of nine to 18 months to facilitate negotiations of a new concession agreement and avoid disruption of water supply.

A 12-month extension of the Langkawi concession on the same terms could lift RNAV/share of RM1.20 by 1% or one sen per share and core earnings per share by 11% in 2020 and 44% in 2021, it said.

It added that Taliworks is in a strong position to explore new opportunities as some companies are looking to dispose of water supply, renewable energy and toll highway concession assets.

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