News

• Received 2 writs of summons from TNB. Taliworks fully owned subsidiary, Sungai Harmoni Sdn Bhd (SHSB) had received 2 writs of summons together with the corresponding statements of claim dated 1 March 2018 filed by Tenaga Nasional Berhad (TNB). TNB is claiming for total outstanding sums amounting to c.RM36m in relation to the outstanding payment of electricity bills.

Comments

• We understand that the reason behind the outstanding payment was mainly due to reduced quantum of payments from Syarikat Pengeluar Air Selangor Sdn Bhd (SPLASH) from about 60% of the monthly billings to approximately 34% with no indication that the quantum will change in the future. As a result, SHSB is unable to fully repay outstanding electricity bills.

• The financial impact to Taliworks is expected to be minimal as the total amount claimed by TNB have been fully expensed off as and when the electricity bills are incurred and taken up as trade payable in the balance sheet.

• The negotiations regarding takeover of SPLASH by the Selangor government has been postponed again until 4 th

July 2018. As at 31 st 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.

Risks

• Further delays in the Selangor’s water restructuring.

Forecasts

• Unchanged given the minimal financial impact as explained above.

Rating

Maintain HOLD, TP: RM1.06 ↔ )

• We opine that dividend may be reduced in FY18 as we deem the chances of the 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 - 8 Mar 2018