With investors likely to gravitate towards defensive and yield plays amid low interest rates environment, lacklustre earnings outlook coupled with continued external headwinds, we believe Taliworks (still cum 1.2sen dividend and may generate 5.9%-7.8% yield for FY19-21) could fit the bill as a utilities/infra exposure backed by robust operating cash flow and stable recurring earnings. Sentiment on the stock could further improve ahead of the total settlement sum of SPLASH’s receivables (~RM700m and the 10% first tranche payment is expected by 3Q19) and more clarity of the negotiation to extend concession for Langkawi’s water treatment plant by end-Dec. We believe Taliworks may also grow as a water-related construction specialist in tandem with future government spending, focusing on improving water supply and distribution infrastructure nations wide starting in 2H19. Technically, the downtrend line breakout is positive for further rally towards RM0.96-1.06 in mid to long term.

Diversified and stable revenue stream. Taliworks is a public utilities conglomerate involved in water, highway concessions, solid waste collection and public cleansing management in the states of Negeri Sembilan, Melaka and Johor in Malaysia. Taliworks has operations spanning across different sectors which will provide them more stable earnings and less vulnerable to idiosyncratic risk.

Positive downtrend line breakout. After falling 13.1% from 52-week high of RM1.03 (29 Apr) to a low of RM0.895 (10 June), TALIWRK has been trending sideways before closing at RM0.92 yesterday. Given the successful downtrend line breakout above RM0.90 and bottoming up technical readings, the stock is likely to surpass immediate barriers at RM0.96 (50% FR) and RM1.00 before reaching our LT objective at RM1.06 (all-time high on 24 mar 2017). Conversely, failure to hold at RM0.895 will witness a retracement back towards RM0.87 (200D SMA) levels. Cut loss at RM0.86.

Source: Hong Leong Investment Bank Research - 10 Jul 2019