Despite a 6.5% gain yesterday, sentiment on the stock may improve after newly appointed Water, Land and Natural Resources Minister Xavier Jayakumar yesterday vowed that the long-standing Selangor water supply issue would be resolve soon. Valuation is still undemanding at 14.3x FY19 P/E (21% below 10Y average of 18x and supported by a 22% EPS CAGR from FY18-20, coupled with a huge trade receivables of c.RM638m (52sen/share; ~54% of its market cap). Positive downtrend line breakout could spur prices higher towards RM1.13-1.25.

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.

Positive remarks by newly appointed Water, Land and Natural Resources Minister. Our institutional research remains optimistic that the long-delayed Selangor water impasse can be resolved in the near term. Our TP of RM1.00 is conservative as we do not include the huge amount of receivables (c.RM638m or 54% 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).

Positive downtrend line breakout. After a 41% slump in share prices from YTD high of RM1.25 (4 Jan) to a low of RM0.74 (9 April), Taliworks’ has formed a double bottom with prices steadily trending higher to end at RM0.975 yesterday. The successful breakout above downtrend line of RM0.91 will spur prices towards RM1.06 (61.8% FR) and RM1.13 (76.4% FR) barriers before reaching our LT objective at RM1.25. Supports are RM0.91 and RM0.875 (23.6% FR). Cut loss at RM0.87.

Source: Hong Leong Investment Bank Research - 4 Jul 2018