The RM665m disposal price for the receivables due from Air Selangor was higher than our DCF valuation of RM638m assumed in our previous RNAV/share estimate of RM1.24 for Taliworks. We gather that the realised value was based on a low discount rate of 3.8% (similar to yield on Cagamas bonds) compared to our assumption of 5% to derive our DCF valuation. We raise our RNAV/share estimate to RM1.30 to reflect the higher realised value for the receivables. Based on the same 10% discount to RNAV, we raise our TP to RM1.18 from RM1.12 previously.

Lower Interest Income Accretion

We reduce our interest income forecasts on expectations of lower returns on cash proceeds from the disposal of receivables (2.7% p.a.) compared to the 5.25% p.a. interest rate on outstanding receivables agreed by Air Selangor. As a result, we cut our core EPS by 12% in 2020-21E.

Higher Dividend Payout Expected

We expect Taliworks to increase dividend payout to 1.8 sen for 4Q19 from 1.2 sen in 3Q19 given its improved financial position, following the successful securitisation of the receivables to raise RM665m cash. From a net debt of RM299m in 3Q19, we estimate Taliworks has turned to a net cash position of RM366m or RM0.18/share.

Maintain BUY With Higher 12-month TP of RM1.18

Taliworks has securitised the receivables as planned. We believe the potential catalyst for an upward re-rating of the stock is an increase in DPS by 30-50% as indicated by management. Management prefers to adopt a sustainable dividend payout rather than paying a one-off special dividend. Our DPS of 7.2 sen in 2020E assumes a 50% increase from 2018 level. Attractive 2020E net yield of 8.3%. Maintain BUY with lifted TP of RM1.18. Key downside risk is dividend payout is not increased as expected. Exploring new investment opportunities

Source: Affin Hwang Research - 30 Dec 2019