Taliworks announced the acquisition of majority economic interests in 3 solar project companies (19MW) and their O&M arm for an aggregate amount of RM144m. Acquisition of remaining economic interests could cost another RM36m. Companies are holders of feed-in approvals granted by SEDA and have 14 years remaining on their respective REPPAs. Transaction is slated for completion by 1H21. Overall, long term positive on the deal as management has reiterated commitment to its annual 6.6 sen DPS. Maintain forecasts and BUY call with TP of RM0.99.

NEWSBREAK

Solar acquisition. Taliworks through its wholly owned subsidiary, Taliworks Renewables Sdn. Bhd. has entered into a conditional SPA with TerraForm Global Operating LP and several of its subsidiaries for the proposed acquisition of majority economic stakes in 4 project companies which owns an aggregate solar capacity of 19 MW-peak near KLIA. Including shareholders’ loan to be injected upon acquisition, Taliworks will pay an amount equivalent to RM144m.

3 of the project companies being acquired namely, i) Fortune 11 Sdn. Bhd. (F11) ii) Corporate Season Sdn. Bhd. (CS) and iii) Silverstar Pavillion Sdn. Bhd. (SP) are holders of feed-in approvals granted by SEDA while the remaining one (Terraform Global Malaysia) is the O&M arm for the projects. For F11, CS and SP each, Taliworks will own 48% of outstanding ordinary shares as well as 51-95% of outstanding preference shares.

HLIB’S VIEW

Transaction details. In addition to the RM144m cost of acquisition (inclusive of shareholders’ loan), Taliworks may fork out an additional RM36m to acquire the remaining minority economic interests in the project companies. The key conditions to be satisfied are mainly approvals from SEDA pursuant to the changes in shareholding. Management is expecting the deal to conclude by 1H21.

Project companies. F11 (5MW), CS (4MW) and SP (2x5MW) hold feed-in-approvals (21 years duration) premised on a build-own-operate model. These companies have 14 years remaining on their respective PPAs with counterparties such as TNB and Malaysia Airports. Based on FYE 31-Dec 2019, the 3 solar companies including their O&M arm chalked up a cumulative PAT of RM2.8m.

Long term positive. Acquisition allows Taliworks to strategically manoeuvre into the RE space. Along with the announcement, management has reiterated their confidence in maintaining an annual DPS of 6.6 sen. We reckon near term dividend shortfall risks are rather minimal given a stable water segment and recovering contribution from toll assets. As such, with dividend concerns allayed, we see the transaction as a long term positive to the group.

Forecast. Unchanged pending completion of exercise.

Maintain BUY, TP: RM0.99. Maintain BUY with unchanged SOP-driven TP of RM0.99. We like the stock for its defensive earnings profile and strong yields of 8.3% for FY20-22. Yield differential against MGS has been increasing on the latter’s downtrend in FY20.

Source: Hong Leong Investment Bank Research - 7 Dec 2020