Taliworks announced another contract win from the phase 1 Rasau water scheme bringing total wins from the project to RM896m. Taliworks has so far secured 2/3 packages on offer. Construction will start by end Dec-21 completing in Dec-24. We are positively surprised by the job win as we had not anticipated repeat wins from the same project. We expect PBT margins in the range of 6- 8%. Raise FY22 & 23 forecasts by 11-20%. Maintain BUY rating with higher SOP driven TP of RM0.98. Taliworks continues to deliver attractive dividend yield of 7.7%. Downside risks include execution, higher risk free rates and return of restrictions.

NEWSBREAK

Taliworks announced its second contract win from the Rasau water scheme (Phase 1) worth RM602.4m. This is package 2 of the Rasau water scheme (Phase 1) where a total of three packages are up for grabs. Taliworks’s scope of works would include design and build of the proposed Rasau treated water pumping station, to existing Bukit Lipat Kajang Reservoirs. Site possession will be by end Dec-21 and construction will span three years ending in Dec-24.

HLIB’s VIEW

Surprising second win. While we previously highlighted Taliworks as a strong contender for Rasau water scheme contracts considering its previous water E&C engagements like Langat 2 reservoir project and Mengkuang Dam expansion project just to name a few, we were positively surprised by its second successive contract win from the project. This brings Taliworks job wins in FY21 to RM896.3m providing earnings visibility for the next three years. We reckon PBT margin for the project would fall in the range of 6-8%. We are not expecting more E&C contract wins from the Rasau scheme considering that 2/3 packages on offer has been nabbed. Nonetheless, we gather that Taliworks did bid for the remaining package.

Rasau water scheme background. The Rasau water scheme project is divided into two phases totalling~RM6bn. Air Selangor has previously guided that phase 1 would cost around RM4bn. Phase 1 carries three packages, slated for completion by 2024 while phase 2 completion is targeted for 2028, tenders likely in 2025. By our estimates, roughly RM3bn of contract value is pending award (package 1), likely within the next two months. For background knowledge, the project was mooted to reduce concentration risk of Sungai Selangor as single source of raw water supply while Langat 2 WTP is unable to supply the Klang region due to uneconomically long distribution and transmission pipeline.

Forecast. Raise FY22 & 23 forecasts by 11.1% & 20.1% post-factoring in contract win.

Maintain BUY, TP: RM0.98. Maintain BUY with slightly higher SOP-driven TP of RM0.98 (from RM0.97) post-earnings adjustments and rolling over valuation to FY22. Taliworks’s defensive source of earnings should anchor its healthy sustainable yields of 7.7%. We continue to favour Taliworks for its consistent earnings delivery amidst pandemic uncertainties bolstered by an attractive dividend profile. Key downside risks include execution, higher risk free rates and return of restrictions.

Source: Hong Leong Investment Bank Research - 17 Dec 2021