Results

• Reported 1HFY17 gross revenue of RM162.6m (+7% yoy) which translated to core net profit of RM41.4m (+8% yoy), accounting for 53.9% and 48% of HLIB and consensus FY forecasts, respectively.

Deviations

• Deemed within expectation as contribution from construction segment is expect to normalise in subsequent quarters.

Dividends

• 2nd interim dividend of 2.0sen/share declared, representing annualised dividend of 8.0sen/share, in line with forecast.

Highlights

• YoY: Core net profit increased by 17% to RM20.6m due to higher revenue from construction and toll highway divisions, partially offset by lower contribution from water segment. Higher contribution from construction segment is due to the upward revision in the contract sum in the Mengkuang Dam Expansion Project which was fully completed in the current quarter.
• QoQ: Core net profit slightly decreased by 2% due to lower share of results from associates, mainly from SWMH on account of over-provision of prior year tax in the previous quarter.
• YTD: Core net profit increased by 8% mainly due to higher contribution from construction segment and full earnings contribution from newly acquired SWMH, partially 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. As at 30th June 2017, the amount of trade receivables owed by SPLASH has ballooned to c.RM559m and this amount is about 31% of Taliworks market capitalization.

Risks

• Further delays in the Selangor’s water restructuring.

Forecasts

• Maintained.

Rating

Maintain BUY, TP: RM1.77 (↑ )

• The settlement of Selangor water sector restructuring has never been closer and we believe this will be the key rerating catalyst. Besides, there is also a potential upside from the issuance of a special dividend should the deal push through.

Valuation

• Maintain BUY with slightly higher SOP- driven TP of RM1.77 (from RM1.76) as we roll forward our valuation to FY18. Besides, we impose a 30% discount on trade receivables owing by SPLASH after taking into account the uncertain timing of the water restructuring exercise.

Source: Hong Leong Investment Bank Research - 17 Aug 2017