Taliworks’s 1HFY21 core PATAMI of RM25m (-9.6% YoY) was within ours but below consensus expectations. DPS of 1.65 sen was declared as expected. Performance from its water segment should remain steady while its toll division could benefit from looser restrictions moving ahead. Taliworks might also secure construction work from upcoming WTP projects. Maintain forecasts and BUY with unchanged SOP-driven TP of RM0.96. We continue to like Taliworks for its consistent earnings delivery amidst pandemic uncertainties bolstered by an attractive dividend profile of 8.0%. Key downside risk includes protracted restrictions from Covid-19 SOPs.

Within expectations. Taliworks reported 2QFY21 results with revenue of RM61.9m (- 5.6% QoQ, -18.6% YoY) and core PATAMI of RM12.6m (1.4% QoQ, 7.4% YoY). This brings 1HFY21 core PATAMI to RM25.0m, decreasing by -9.6%. Results were within our but slightly below consensus at 48% and 41% of full year forecasts. Dividends. DPS of 1.65 sen was declared for the quarter (going ex on 7 Sept 2021). Dividend payment is in-line with our expectations of 1.65 sen per quarter.

QoQ. Core PATAMI registered marginal increase of 1.4% despite revenue declining by -5.6% aided by higher margins from its construction business (reversal of retention sum losses) and lower minority interests as contribution from its Cheras-Kajang highway was lower chalking up a lower ADT of -17.1%.

YoY. Core PATAMI increased by 7.4% offsetting revenue decline of -18.6% driven by RM3m swing to profitability by its associate (SWM) and lower finance costs (-7.8%) having retired two tranches of its IMTN. We note that the revenue decline resulted from cessation of Taliworks Langkawi which contributed RM14m (revenue) and marginal operating loss of -RM676k in 2QFY20.

YTD. 1HFY21 earnings fell by -9.6% brought about by lower metered sales at SSP1, expiration of Langkawi water operations and lower net returns from investments.

Water segment. Revenue declined by -29% resulting from: (1) expiration of Taliworks Langkawi (31-Oct-20) and (2) lower metered sales and electricity rebates for its SSP1 operations. Excluding Langkawi, metered sales at SSP1 declined by -1.6% with average MLD marginally lower by -1.1% during the period. The segment is poised to benefit from steady contribution from SSP1.

Tolls. Revenue contribution from Cheras-Kajang highway increased by 2% driven by improving ADT of 2.7% YoY. We believe the recovery was derailed by NRP Phase 1 in June. Nonetheless, performance was still better than 2QFY20 which was dragged by MCO1.0. Grand Sepadu’s ADT came in higher by 7.7% YoY on the back of low base effect as well as redirection of traffic from closure of the old bypass. We anticipate further rebound in ADT in in-line with loosening restrictions moving forward.

Forecast. Maintain Forecasts Given In-line Earnings Performance.

Maintain BUY, TP: RM0.96. Maintain BUY with same SOP-driven TP of RM0.96. Taliworks’s defensive source of earnings should anchor its healthy sustainable yields of 8.0% for FY21-22. We continue to like Taliworks for its consistent earnings delivery amidst pandemic uncertainties bolstered by an attractive dividend profile. Key downside risk includes protracted restrictions from Covid-19 SOPs.

Source: Hong Leong Investment Bank Research - 24 Aug 2021