Taliworks announced that it has been awarded RM42.4m contract from Setia Haruman Sdn Bhd for the construction of 76ML R.C. Reservoir R4 and related ancillary works at Cyberjaya, Selangor. With the latest job win, orderbook is now estimated at RM70m (cover ratio of 1.4x). Taliworks is expected to benefit from rollout of water infrastructure projects given its experience in construction of water infrastructures and its role as O&M operator for SSP1 in Selangor. Increase FY18-20 by 2-3% as this job win come as a surprise to us. Maintain BUY rating with higher SOP-driven TP of RM1.01 (from RM1.00) post earnings forecast and bonus issue adjustment. Potential high dividend yield (estimated at 9.5%) from the completion of Selangor water restructuring is the key attraction.

NEWSBREAK

Reservoir construction contract. Taliworks announced that it has been awarded RM42.4m contract from Setia Haruman Sdn Bhd for the construction of 76ML R.C. Reservoir R4 and related ancillary works at Cyberjaya, Selangor. The work is expected to be completed by November 2021.

HLIB’s VIEW

First water related construction job win since 2016. This construction job win represents first win since 2016. Taliworks’s orderbook currently stands at c.RM70m based on our estimates which translates to 1.4x cover on FY17 construction revenue. We do not impute any orderbook replenishment assumption as the company only bid for projects opportunistically.

Beneficiary of water projects. Following the change in government post GE14, domestic construction industry prospect turned gloomy following review and cancellation of mega projects. Nonetheless, water related infrastructure projects in low reserve margin states such as Kedah and Selangor are given priority as mentioned in the 11th Malaysia Plan Mid-term Review. As such, Taliworks is expected to benefit from rollout of water infrastructure projects given its experience in construction of water infrastructures and its role as O&M operator for SSP1 in Selangor.

Forecast. Increase FY18-20 by 2.6%, 2.7% and 1.9% respectively due to this surprise win of reservoir contract. We expect Taliworks to maintain its construction division revenue at FY17 level (i.e. RM50m) given the inflow of this new job win which should sustain this segment over the mid-term.

Maintain BUY, TP: RM1.01. Maintain BUY rating with slightly higher SOP-driven TP of RM1.01 (from RM1.00) post earnings forecast and bonus issue adjustment. Management guided that whole Selangor water consolidation exercise should be completed by 1st January 2019 if everything goes on schedule. Assuming that management follows the repayment schedule proposed by Air Selangor, the company would distribute a total of 7.2 cents dividend annually which translates to a 9.5% dividend yield based on current share price. We also do not discount the possibility of lump-sum upfront special dividend if management choose to monetize the receivables with 3rd party institutions.

Source: Hong Leong Investment Bank Research - 1 Nov 2018