Results

• 4Q17 core net profit came at RM18.6m, bringing FY17 core profit to RM80.4m, in line with our expectations but above consensus, accounting for 105.0% and 112.0% of HLIB and street estimates respectively.

Deviations

• None.

Dividends

• 4th interim dividend of 2.0sen/share declared, representing FY17 dividend of 8.0sen/share, in line with forecast.

Highlights

• YoY/QoQ : Core net profit decreased (yoy: 47.5%, qoq:8%) mainly due to lower contribution from associate caused by higher depreciation and amortisation expenses, partially offset by higher share of results from JV caused by compensation received for non-increase in scheduled toll rate hike.

• FY17 : Core net profit decreased by 23.0% mainly due lower contribution from associate caused by higher depreciation and amortisation expenses and higher operating costs in both water treatment plant.

• Selangor Water : The negotiations regarding takeover of Syarikat Pengeluar Air Selangor Sdn Bhd (SPLASH) by the Selangor government has been postponed again until July 4, 2018. As at 31st December 2017, the amount of trade receivables owed by SPLASH has ballooned to c.RM616m and this amount is about 56% of Taliworks market capitalization.

• Dividend: Management has guided that Taliworks will continue to pay dividend of 2 sen per share for next quarter and further dividend declarations thereafter will be reviewed based on the outcome of the takeover of SPLASH.

Risks

• Further delays in the Selangor’s water restructuring.

Forecasts

• Maintained.

Rating

Maintain HOLD, TP: RM1.06 ↔ )

• We opine that dividend may be reduced in FY18 as we deem the chances of SPLASH deal materializing before the next deadline to be highly unlikely. However, any positive news regarding Selangor water restructuring deal will provide catalyst for re-rating of share price.

Valuation

• Maintain HOLD with unchanged SOP- driven TP of RM1.06.

Source: Hong Leong Investment Bank Research - 1 Mar 2018