Results

• Taliworks reported 1QFY17 results with revenue of RM71.4m (+3.4% QoQ, -5.1% YoY) and core PATAMI of RM19.3m (-0.2% QoQ, +105% YoY), accounting for 25.2% and 22.4% of HLIB and consensus forecasts, respectively.

Deviations

• None.

Dividends

• 1st interim dividend of 2.0sen/share declared, in line with full year 8.0sen/share dividend forecast.

Highlights

• YoY: Revenue declined 5% as higher revenue contribution from construction segment was offset by higher provision for discounting on deferred payment. Core PATAMI rose significantly by 105% due to the contribution from newly acquired associate SWME, slightly offset by higher amortization expenses arising from change in the method of amortization in toll way concessions.
• Selangor Water: The negotiations regarding takeover of Syarikat Pengeluar Air Selangor Sdn Bhd (Splash) by the Selangor government has been postponed until Oct 5, 2017. In the meantime, the quantum of payments from SPLASH had been reduced from about 60% of the monthly billings to 34% which results in accumulation of trade receivables owed by SPLASH. As at 31th March 2017, the amount of trade receivables owed by SPLASH has ballooned to c.RM531m and this amount is about 29% of Taliworks market capitalization.
• Toll division: The commencement of Klang Valley Mass Rapid Transit (?MRT?) is expected to have a negative impact on traffic of Cheras-Kajang. We opine that actual impact may only emerge upon full operation of the KL-Kajang portion of the MRT. However, we opine that any negative impact is likely to be temporary and over the long term, the MRT service would complement the Highway?s growth by providing connectivity and aiding the development of new townships in surrounding areas.
• M&A prospect: Management is actively looking for merger & acquisitions opportunities. However, we understand that no deals would be concluded in the near term as talks are still in preliminary stages.

Risks

• Further delays in the Selangor?s water restructuring.

Forecasts

• Unchanged.

Rating

Maintain BUY, TP: RM1.76 (↔)

• Although the SPLASH deal has been delayed, we opine that it?s just a matter of time before the deal go through. Taliworks investors could enjoy a generous dividend yield (5.3% as of now) while waiting for any potential upsides should the deal push through in October.

Valuation

• Maintain BUY with unchanged TP of RM1.76. Our TP is based on SOP valuation which we deem appropriate for a company like Taliworks that is involved in different business segment.

Source: Hong Leong Investment Bank Research - 23 May 2017