Taliworks’s FY19 core PATAMI of RM55m (+9% YoY) was above our expectations (but below consensus) mainly due to higher than expected realised BSR rates. YTD core PATAMI decreased due to lower contribution from construction segment and higher share of losses from SWME. Total securitisation sum of SPLASH receivables is RM660m. Maintain forecasts and BUY with same SOP-driven TP of RM1.02. We like the stock for its defensive earnings profile and potential upside to our estimated dividend yield of 7.2% for FY20-21.

Above expectations. Taliworks reported 4QFY19 results with revenue of RM105.5m (+13% QoQ, +11% YoY) and core earnings of RM11.0m (-39% QoQ, +212% YoY). This brings FY19 core earnings to RM54.8m, decreasing by 9% YoY. The core earnings accounted for 112% of our full year forecast (consensus: 90%) which is above ours but below consensus expectations. Note that FY19 core earnings have been adjusted for net EI of RM81m relating to gain on trade receivables due from SPLASH, waiver for trade payables and loss on disposal.

Deviations. The positive results surprise was mainly due to higher than expected realised BSR rates during the year as a result of changes in the rates resulting from the BWSA.

Dividends. Fourth interim DPS of 1.65 sen was declared for the quarter (going ex on 11 March 2020). This brings total DPS declared for FY19 to 5.25 sen (FY18: 4.8 sen).

QoQ. Core PATAMI decreased by 39% mainly due to higher share of losses from associate SWME during the quarter.

YoY. Core PATAMI increased by 212% due to higher compensation from the government for Grand Sepadu arising from the non-increase in scheduled toll rate hike as well as lower losses at SWM driven by changes in depreciation method.

YTD. Core PATAMI decreased by 9% due to (i) lower contribution from construction segment as a result of completion of new access to NNKSB in 3QFY18, (ii) slower work progress for on-going projects, (iii) higher share of losses from associate SWME attributable to change of amortisation methods and (iv) lower contribution from water segment due to higher provision of restoration cost in Langkawi operations coupled with higher chemical expenses.

SPLASH receivables. The total securitisation sum of SPLASH receivables is RM660m. Management guided that the amount will be deployed through sustainably higher dividend payouts and potential M&A opportunities. The potential quantum of increase in dividends was guided to be “double digits in percentage”.

Langkawi. Negotiation to extend concession for Langkawi’s water treatment plant is still ongoing and there would be more clarity towards year end. We understand that capital expenditure to increase water production capacity would be required in order to extend the concession period that is expiring in October 2020.

Forecast. Maintain forecast as earnings beat is due to timing of changes in BSR rates during the year.

Maintain BUY, TP: RM1.02. Maintain BUY with same SOP-driven TP of RM1.02. We like the stock for its defensive earnings profile and potential upside to our estimated dividend yield of 7.2% for both FY20-21.

Source: Hong Leong Investment Bank Research - 28 Feb 2020