Negatives largely priced after a 28% slump in share prices YTD, mainly attributable to the Selangor water crisis, post GE14 selloff coupled with concern of potential cuts in dividend payment and tolls restructuring. Nevertheless, further downside risks are cushioned by an undemanding 11.7x FY19 P/E (35% below 10Y average of 18x and supported by a 22% EPS CAGR from FY18-20) coupled with a huge trade receivables of ~RM638m or 52sen/share (66% of its market cap).

Public utilities conglomerate. A result of transformative M&A track record, Taliworks has morphed into an operator of sizeable infrastructure assets, with earnings stream is backed by mature and profitable concessions. Following its disposal of the entire waste management business in China in May 2016 for RM245m, Taliworks had realigned business model is driven by four main divisions: 1) Water treatment and distribution – One of the O&M players in Selangor (Sungai Harmoni SSP1 - 100% stake) and the sole player in Langkawi (Taliworks Langkawi - 100% stake); 2) Tolled highways – Owns and operates two highways domestically i.e. Cheras-Kajang Highway - 51% stake and NNKSB Expressway - 37.5% stake; 3) Waste and wastewater – new acquisition in Feb 2016: Southern Waste Management (SWM); 4) Construction and Engineering – water-related infrastructure works specializing in water treatment plants (WTPs).

Diversified and stable revenue streams. Taliworks has operations spanning across different sectors which will provide them various earnings avenue and less vulnerable to idiosyncratic risk. We believe Taliworks could fit the defensive theme as a backed by steady operating cash flow and recurring earnings.

Negatives largely priced after share prices dived 28% YTD, mainly attributable to the Selangor water crisis, post GE14 selloff coupled with concern of potential cuts in dividend payment and tolls restructuring. Nevertheless, we see limited downside risks as the stock is trading at undemanding 11.7x FY19 P/E (35% below 10Y average P/E of 18x) and 0.92x P/B (29% below 10Y average 1.3x) coupled with a huge trade receivables of ~RM638m or 52sen/share (66% of its market cap) as at 1Q18.

HLIB maintains a BUY rating with RM1.00 TP (+25.8% upside). Our institutional research remains optimistic that the long-delayed Selangor water impasse can be resolved more amicably. Our TP of RM1.00 is conservative as we do not include the huge amount of receivables (c.RM638m or 66% of market capitalization, which could translate to the possibility of special dividends) owed by SPLASH into our SOP valuation and hence is subject to huge upward revision once the deal is being finalized (the next dateline falls on 4 July).

Poised for a descending triangle breakout. Following a 28% slide in prices, TALIWRK has been building a good base near RM0.74 (9 April) and RM0.76 (1 June) before creeping up at RM0.795 yesterday. We expect a descending triangle breakout soon, as technicals are on the mend. A successful breakout will spur prices towards RM0.84 (50d SMA) and RM0.90 (100d SMA) barrier before reaching our LT objective at RM1.01 (upper Bollinger band). Cut loss at RM0.695.

Source: Hong Leong Investment Bank Research - 12 Jun 2018