Management has previously mentioned that the cash injection may be deployed through sustainably higher dividend payouts and potential M&A opportunities. Based on our estimates, a sustainable dividend payout may result in yields of 6.9% for FY20 and FY21. Maintain forecasts as we have accounted for the securitisation of receivables. Maintain BUY with same SOP-driven TP of RM1.02. We like the stock for its stable earnings profile and potential upside to our estimated dividend yield of 6.1% for FY19 and 6.9% for both FY20-21.

NEWSBREAK

Taliworks announced that it has successfully sold its SPLASH receivables (RM644m) via its wholly owned subsidiary, Sungai Harmoni Sdn. Bhd. to an independent special purpose vehicle (SPV), Starbright Capital Berhad. The SPV was formed to undertake the securitisation of the receivables. The purchase of the receivables will be funded through the issuances of RM655m in asset backed medium term notes. Going forward, Taliworks will have no legal liability and will not be held accountable towards Starbright in the event of any default by SPLASH and Air Selangor.

HLIB’S VIEW

Recap. As at 3QFY19, the company’s outstanding receivables due from SPLASH amounted to RM795m. As part of the termination and settlement agreement entered into between Taliworks and SPLASH, the latter will pay a settlement sum of RM716m (after accounting for a 10% haircut) inclusive of an upfront payment (c.RM72m received in 3QFY19) and 9 annual payments at an interest rate of 5.25%. The outcome was within expectations as management has previously guided for a securitisation of the remaining receivables with no further haircuts expected.

Financial impact. Taliworks’s net gearing will turn net cash (c.22% of market cap) from 0.3x as at 3QFY19. Management has previously mentioned that the cash injection may be deployed through sustainably higher dividend payouts and potential M&A opportunities (guided to be smallish). The potential quantum of increase in dividends was guided to be “double digits in percentage”. We reckon a one-off special dividend is unlikely as the company may set aside cash for potential new capex for its Langkawi operations should an extension beyond expiry date of Oct 2020 is approved. Based on our estimates, a sustainable dividend payout may result in yields of 6.9% for FY20 and FY21.

Forecast. Maintain forecasts as we have accounted for the securitisation of receivables.

Maintain BUY, TP: RM1.02. Maintain BUY with same SOP-driven TP of RM1.02. We like the stock for its stable earnings profile and potential upside to our estimated dividend yield of 6.1% for FY19 and 6.9% for both FY20-21.

Source: Hong Leong Investment Bank Research - 6 Jan 2020