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This article first appeared in The Edge Financial Daily on March 18, 2019

Taliworks Corp Bhd
(March 15, 91.5 sen)
Buy with a target price of RM1.18:
We believe the long-standing issue with its Sungai Selangor Water Supply Scheme Phase 1 (SSP1) operation and maintenance agreement (OMA) will be resolved by the March 31, 2019 deadline. Under the new OMA, we believe the improvement in free cash flow (FCF) will allow Taliworks to increase its dividend payout. We estimate average FCF for SSP1 is RM136 million or 6.7 sen per share per annum over the next 10 years, which includes the partial repayment of receivables of RM732 million outstanding as at end-2018.

 

Taliworks holds effective stakes of 51% in Grand Saga Sdn Bhd (Cheras-Kajang Highway concessionaire) and 32.5% in Grand Sepadu (NK) Sdn Bhd (New North Klang Straits Bypass Expressway concessionaire). Taliworks’ share of FCF for the two toll highways amounted to RM62 million or three sen per share per annum in 2016-18, which is expected to remain stable going forward as the concessions expire in 2045 and 2032, respectively.

Taliworks is a specialist contractor with a strong track record in undertaking water-supply and distribution works. Its ongoing projects include the RM76 million SSP7, RM73 million Ganchong Water Treatment Plant and RM42 million 76ML RC Reservoir R4, Cyberjaya. It has good prospects to expand its order book given the federal government has budgeted RM690 million for water infrastructure projects in Budget 2019.

We like Taliworks for its portfolio of mature infrastructure assets that generate recurrent earnings and cash flow. — Affin Hwang Capital, March 15

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