Taliworks’s 1HFY22 core PATAMI of RM21.6m (-13.3%) missed our and consensus expectations at 35%/29% of forecasts. DPS of 1.65 sen was in-line with expectations. The water and toll divisions should continue to churn steady numbers while we expect stronger solar contribution in subsequent quarters. Newly secured RM896m of construction work may only start contributing meaningfully in FY23. Cut FY22 earnings by -7% but increase FY24 earnings by 5%. Maintain our BUY rating with unchanged SOP-driven TP of RM1.00. Taliworks continues to deliver an attractive dividend yield of 7.1%.

Missed expectations. Taliworks reported 2QFY22 results with revenue of RM85.7m (14.5% QoQ, 38.5% YoY) and core PATAMI of RM11.0m (4.4% QoQ, -12.1% YoY). This brings 1HFY22 core PATAMI to RM21.6m, falling by -13.3% YoY. Results missed our/consensus expectations at 35%/29% of full year forecasts. Earnings shortfall was mainly due to slow ramp up in its construction projects.

Dividends. DPS of 1.65 sen was declared for the quarter, in-line with expectations (going ex. on 8 Sept-22).

QoQ. Core PATAMI increased by 4.4% on the back of higher revenue (+14.5%) which saw higher construction billings and maiden contribution from its recently acquired solar assets. Nonetheless, the dilution to bottom-line came from wider losses from share of associates due to higher cost pressure at SWM (losses doubled this quarter).

YoY. Core PATAMI declined by -12.1% even as revenue fared much better at 38.5% higher, dragged by weakness at SWM which saw a ~RM6.4m swing, registering a share of loss of -RM4.5m this quarter compared with share of profit totalling RM1.9m in 2QFY21. The higher tax rate was also instrumental in dragging down numbers as tax waiver at Grand Saga expired starting this year.

YTD. Core PATAMI declined by -13.3% despite higher revenue due to reasons highlighted in the YoY para.

Water. Revenue came in higher by 8.5% aided by a 3.9% increase in metered sales and average MLD. The higher electricity and chemical rebates also boosted revenue beyond growth rates achieve by metered sales. We continue to expect stable metered sales to anchor the division’s performance going forward.

Tolls. ADT at the Grand Saga highway and Grand Sepadu increased by 34% and 16% respectively, benefitting from increased car usage in 1HFY22. Essentially, traffic volumes are at pre-pandemic levels for 2QFY22.

Construction. Revenue contribution has been sluggish so far with 1HFY22 coming in at only 11% of our full year forecasts. The project is only currently at the design stage and should ramp up starting next year. Guided margins are in the “high single digit” range while materials cost risks are mitigated by VOP clause. Taliworks is also working on other water-related construction proposals.

Forecast. Cut FY22 earnings by -7.0% but increase FY24 earnings by 4.6% after delaying construction billings. No change to FY23 earnings forecasts.

Maintain BUY, TP: RM1.00. Maintain BUY with unchanged SOP-driven TP of RM1.00. Taliworks’s defensive source of earnings should anchor its healthy sustainable yields of 7.1% for FY22-23. We continue to like Taliworks for its solid dividend return profile.

Source: Hong Leong Investment Bank Research - 25 Aug 2022