Taliworks’s 9MFY21 core PATAMI of RM66m beat our and consensus expectations at 126%/113% of forecasts due to lumpy deferred income recognition. DPS of 1.65 sen was in-line with expectations. The water segment should continue to churn steady numbers while we expect toll traffic recovery along with the NRP. Possible upside to forecasts could come from new water construction work. Raise FY21-23 forecasts by 7-54%. Maintain BUY rating with unchanged SOP-driven TP of RM0.96. Taliworks continues to deliver attractive dividend yield of 8.0%. Downside risk includes higher risk free rates and return of restrictions.

Beat expectations. Taliworks reported 3QFY21 results with revenue of RM102.3m (65.2% QoQ, 23.8% YoY) and core PATAMI of RM41.4m (229.1% QoQ, 155.6% YoY). This brings 9MFY21 core PATAMI to RM66.3m, increasing by 51.4%. Results beat both our and consensus expectations at 126% and 113% of full year forecasts.

Deviations. Results beat due to lumpy recognition of deferred income attributable to toll compensation amounting to RM43.5m for Grand Saga.

Dividends. DPS of 1.65 sen was declared for the quarter (going ex. on 30 Nov-21).

QoQ. Core PATAMI more than tripled lifted by deferred income recognition for Grand Saga and Grand Sepadu highways. The compensation masked underlying QoQ ADT weakness at both highways contracting by -13% and -6% at Grand Saga and Grand Sepadu. Sequential weakness was brought about by imposition of Phase 1 NRP in June.

YoY. Core PATAMI more than doubled, due to reasons outlined above, more than offsetting the fall in earnings from its water segment as its Langkawi contract expired. Traffic at Grand Saga and Grand Sepadu fell by -40% and -28% respectively.

YTD. 9MFY21 core PATAMI increased by 51% riding on the toll compensation. This alone was able to negate the downward impact of Taliworks Langkawi expiry and ADT drop ranging between -6% to -15% for its highways YTD.

Water. Revenue declined by -28% resulting from: (1) expiration of Taliworks Langkawi~90% of decline and (2) lower electricity & chemical rebates for its SSP1 operations. Metered sales at SSP1 remained steady, a mild decline of -0.8%. We expect metered sales at SSP1 to edge higher with increased usage alongside higher economic activities.

Tolls. ADT at the Cheras-Kajang highway fell by -15% while Grand Sepadu saw a -6% drop due to various restrictions imposed this year. We anticipate further rebound in ADT in in-line with loosening restrictions. Nonetheless, due to high base from sizable lumpy recognition of deferred income in 3QFY21, earnings performance could come in sequentially weaker moving forward.

Forecast. Raise FY21/22/23 forecasts by 54.1%/7.7%7.6% accounting for lumpy deferred income and higher associate contribution.

Maintain BUY, TP: RM0.96. Maintain BUY with unchanged 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 higher risk free rates and return of restrictions.

Source: Hong Leong Investment Bank Research - 16 Nov 2021