Taliworks’s FY20 core PATAMI of RM60m (+9% YoY) was within ours and consensus expectations. Performance was buoyed by lower finance costs, turnaround at associate and higher dividend income. We think Taliworks may potentially secure work from Rasau WTP. Maintain earnings forecasts. Maintain BUY with same SOP-driven TP of RM0.99. Stock presents an attractive dividend yield of 8.0% for FY21-22.

Within expectations. Taliworks reported 4QFY20 results with revenue of RM74.9m (- 9% QoQ, -29% YoY) and core earnings of RM15.7m (-3% QoQ, 43% YoY). This brings FY20 core earnings to RM59.5m, increasing by 8.5%. The core earnings accounted for 100% of our (consensus: 95%) forecast which is within expectations.

Dividends. DPS of 1.65 sen was declared for the quarter (going ex on 12 March 2021). This brings FY20 dividend to 6.6 sen meeting management’s guidance.

QoQ. Core PATAMI declined by -3% brought upon by lower revenue (-9%) resulting from lower topline contributions from water (-12%) and toll (-11%) segments. During the quarter, Taliworks’s Langkawi concession ended on 31 Oct-20 and toll traffic volume also saw declines as CMCO was re-imposed.

YoY. Core PATAMI improved by 43% despite revenue decline (-29%) mainly due to higher share of profit from associate (RM8m swing) as well as lower finance costs (- 25%) from repayment of borrowings.

YTD. Core PATAMI increased by 9% mainly driven by (i) higher dividend income from investments resulting from deploying its receipt of SPLASH receivables as investments, (ii) lower share of losses from associates and (iii) lower finance costs from repayment of borrowings.

Water segment. For FY20, revenue declined by -12% (ex. impact of MFRS15) largely driven by lower metered sales in Langkawi and SSP1. SSP1 sales declined by 3.7% due to reduction in BSR rates pursuant to the new agreement being signed and 70.5 hours of operational disruption arising from pollution in Sungai Selangor. Meanwhile, Langkawi saw sales tumbling by -17% resulting from its concession ending in Oct- 2020 coupled with various forms of MCO impacting water consumption demand in Langkawi.

Tolls. Taliworks’ Cheras-Kajang highway saw ADT declining by -20% while its Grand Sepadu saw a -19% drop in traffic. Both were caused by various phases of MCO to which the company took steps to mitigate impact by reducing borrowings and various cost cutting measures.

Construction. Segment revenue was weak during FY20 with declining orderbook compounded by MCO work stoppages. Revenue was substantially contributed by its Langat 2 project. We view Taliworks as a credible candidate to secure work from the upcoming Rasau WTP phase 1 project (RM2bn) which is currently undergoing pre qualification whereby contract awards are expected by Nov-2021. Phase 1 will be divided into multiple packages.

Forecast. Maintain forecasts as earnings are inline.

Maintain BUY, TP: RM0.99. Maintain BUY with same SOP-driven TP of RM0.99. Stock offers healthy sustainable yields of 8.0% for FY21-22.

Source: Hong Leong Investment Bank Research - 8 Mar 2021