Friday 29 Mar 2024
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KUALA LUMPUR (Aug 6): Taliworks Corp Bhd shares slumped as much as 13 sen or 10% to RM1.17 so far today as investors evaluated Pengurusan Air Selangor Sdn Bhd's proposed RM2.55 billion cash offer to take over Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash). The offer price is a 28% discount to Splash's net book value of RM3.54 billion as at June 30, 2018.

According to Taliworks website, one of Taliworks' core businesses is in the privatised water-supply sector. The business includes an operation and maintenance (O&M) contract for the Sungai Selangor Phase 1 Water Treatment Plant (SSP1) that supplies treated potable water to large parts of Selangor and Kuala Lumpur, Taliworks' website indicates.

At Bursa Malaysia today, Taliworks shares were transacted at RM1.18 at 3:39pm with some four million shares traded.

On Friday, Syarikat Pengeluar Air Selangor Holdings Bhd (Splash Holdings) received the letter of offer from Pengurusan Air Selangor. Splash is a wholly-owned subsidiary of Splash Holdings.

Today, Hong Leong Investment Bank Bhd wrote in a note: "Post finalisation of Splash (Holdings) deal, we believe Taliworks will continue to run the operations and maintenance (O&M) operations for SSP1 water treatment plant. This is because a tripartite agreement had been signed between the Selangor state government, Splash (Holdings) and Taliworks, and the agreement allows Taliworks to negotiate directly with Selangor government, should Splash (Holdings) no longer requires its services. However, we do not discount the possibility that there will be changes to the terms under current agreement that is expiring in 2030."

"We understand that negotiation regarding RM638 million receivables (as at 1Q18) owed by Splash (Holdings) to Taliworks is undergoing at this juncture. Assuming similar discount with Splash (Holdings) deal (28% discount) and transaction structure (75% upfront cash payment, 25% instalment), Taliworks will receive c.RM382 million upfront receivable payment (32 sen per share) with the balance in instalment. Under this scenario, Taliworks is expected to write back a small amount of recovered receivables as carrying value of receivables is c.RM452 million," Hong Leong said.

Hong Leong said it downgraded Taliworks shares to 'hold' with an unchanged target price of RM1.29 as Taliworks' strong share price performance over the past two months reflected optimism on the finalisation of the Splash Holdings deal.

"Moreover, discount on receivables recovered maybe higher than expected and magnitude of special dividend may disappoint," Hong Leong said.

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