Taliworks’s 9MFY22 core PATAMI of RM34.1m (-48.5%) missed our and consensus expectations at 59%/56% of forecasts. DPS of 1.65 sen was in-line with expectations. Overall, we expect steady earnings performance going forward. Construction is slowly picking up and should contribute meaningfully in FY23. Despite the results miss, we keep forecasts unchanged as earnings in 4QFY22 could still play catch up driven by pending toll compensation. Downgrade to HOLD with lower SOP-driven TP of RM0.91 (from RM1.00) post updating our valuation parameters. Taliworks continues to deliver an attractive dividend yield of 7.4%.

Missed expectations. Taliworks reported 3QFY22 results with revenue of RM91.3m (6.5% QoQ, -10.8% YoY) and core PATAMI of RM12.5m (13.2% QoQ, -69.8% YoY). This brings 9MFY22 core PATAMI to RM34.1m, falling by -48.5% YoY. Results missed our/consensus expectations at 59%/56% of full year forecasts. Earnings shortfall was mainly due to pedestrian pace of construction progress. Nevertheless, there is a chance earnings may catch up in 4QFY22 boosted by toll compensation.

Dividends. DPS of 1.65 sen was declared for the quarter (ex-date: 6 Dec-22).

QoQ. Core PATAMI increased by 13.2% on the back of higher revenue (+6.5%) driven by all segments. At the PBT level, key drivers were water (+3.9%), highways (+39.8%) and solar (+66.0%). The sizable increase in its solar segment is due to full quarter contribution while pickup in highways was due to higher toll collection and write-back of heavy repairs provision.

YoY. Core PATAMI declined by -69.8% as 3QFY21 saw a major boost from toll compensation at Grand Saga amounting to RM43.5m (revenue). Stripping this off, profitability remains largely unchanged.

YTD. Core PATAMI declined by -48.5% resulting from the aforementioned toll compensation received in 3QFY21. Adjusting for this, all segments except waste management saw improved profitability.

Water. Revenue came in higher by 9.8% aided by a 5.0% increase in metered sales further driven by higher electricity and chemical rebates. 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 45% and 22% respectively, benefitting from increased car usage in 9MFY22. Essentially, traffic volumes are above pre-pandemic levels for 3QFY22.

Construction. Revenue contribution has picked up increasing by 32% QoQ, with its Rasau packages slowly ramping up. So far, remaining unbilled for both packages is at ~95%. The slower-than-expected progress is due to handover delays from authorities. Guided margins remain unchanged in the “high single digit” range while materials cost risks are mitigated by VOP clause.

Forecast. Despite the results miss, we keep forecasts unchanged as earnings in 4QFY22 could still play catch up as highlighted above.

Downgrade to HOLD, TP: RM0.91. Downgrade to HOLD with lower SOP-driven TP of RM0.91 (from RM1.00) post updating our valuation parameters. Taliworks’s defensive source of earnings should anchor its healthy yield of 7.4%.

Source: Hong Leong Investment Bank Research - 22 Nov 2022