Taliworks’s FY21 core PATAMI of RM79m met our and consensus expectations at 97%/101% of forecasts. 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 in FY22. Newly secured RM896m of construction work should augment its bottom-line starting this year. Maintain forecasts and BUY rating with unchanged SOP-driven TP of RM0.98. Taliworks continues to deliver attractive dividend yield of 7.3%. Downside risks include lower yield spread and return of restrictions.

Meets expectations. Taliworks reported 4QFY21 results with revenue of RM72.4m (-29.2% QoQ, -3.3% YoY) and core PATAMI of RM12.2m (-70.5% QoQ, -22.4% YoY). This brings FY21 core PATAMI to RM78.5m, increasing by 32.0% YoY. Results met both our and consensus expectations at 97% and 101% of full year forecasts.

Dividends. DPS of 1.65 sen was declared for the quarter (going ex. on 9 Mar-22). This brings total FY21 DPS declared to 6.6 sen, within our expectations.

QoQ. Core PATAMI declined sequentially by -70.5% as the previous quarter was lifted by deferred income recognition for its highways. Water metered sales improved by 3.0% sequentially while construction segment turned to marginal profit on the back of upward adjustment in contract sum for some of its existing projects. ADT for both Grand Saga and Grand Sepadu saw a 67% and 30% rebound respectively in line with the reopening.

YoY. Core PATAMI fell by -22.4% mainly due to expiration of Taliworks Langkawi (reflected in approximately 1/3 of 4QFY20), receipt of toll compensation for Grand Sepadu in 4QFY20 as well as lower construction margins due to various work suspensions in 2021.

YTD. Core PATAMI increased by 32.0% riding on the bumper toll compensation received in FY21. This alone was able to negate the downward impact of Taliworks Langkawi expiry, ADT drop of -7% and -3% for Grand Saga and Grand Sepadu highways and lower investment income.

Water. Revenue declined by -25% resulting from: (1) expiration of Taliworks Langkawi~93% of decline and (2) lower electricity & chemical rebates for its SSP1 operations. Metered sales at SSP1 remained steady, a mild increase of 0.3% in FY21. The recovery in economic activities has helped push up metered sales in 4QFY21 by 3% QoQ. We continue to expect metered sales to grind higher with increased usage alongside a normalising economy.

Tolls. ADT at the Grand Saga highway fell by -7% while Grand Sepadu saw a -3% drop due to various restrictions imposed in FY21. ADT has continued to rebound with volumes close to pre-pandemic levels in Jan-22.

Construction. This segment should augment earnings performance in FY22 having secured RM896m worth of contracts from the Rasau water scheme. Guided margins are in the “high single digit” range while materials cost risks are mitigated by VOP clause. Taliworks is in the running for the last Rasau package, estimated at RM2bn and is working on other water-related construction proposals.

Forecast. Maintained.

Maintain BUY, TP: RM0.98. Maintain BUY with unchanged SOP-driven TP of RM0.98. Taliworks’s defensive source of earnings should anchor its healthy sustainable yields of 7.3% for FY22-23. We continue to like Taliworks for its consistent earnings delivery throughout the pandemic bolstered by an attractive dividend profile. Key downside risks include lower yield spread and return of restrictions.

Source: Hong Leong Investment Bank Research - 23 Feb 2022