CIMB Research upgrades Taliworks to add, TP RM1.40


One of Taliworks

KUALA LUMPUR: CIMB Equities Research has upgraded Taliworks Corporation to an add with a higher target price of RM1.40 compared with 91 sen previously.

It said on Tuesday, the 90% recovery in receivables, though largely staggered over nine years, eliminates overhang on the stock. 

“It solidifies the new operations and maintenance (O&M) contract over the longer term, while the improved cashflow for Sungai Harmoni increases the odds of higher dividends (on top of the sustainable eight sen per annum 6.5% yield), in our view. 

“We narrow RNAV discount to 10% (40% previously) which raises TP to RM1.40. Upgrade from Hold to Add in view of the diminishing receivables risk and improved earnings prospects from new O&M terms,” it said.

CIMB Research said Taliworks 1HFY18 core net profit was in line at 47% of its and 50% of consensus full-year estimates.

It deems this broadly in line as it expects a stronger 2H18F on the back of diminishing provisions on receivables and higher bulk supply rates (BSR) for Langkawi and Selangor water operations as per the existing O&M contract. 

The absence of provisions in 2Q18 (1Q18: RM9.9mil) in relation to the recovery of unpaid receivables of Sungai Harmoni almost doubled 1H18 reported net profit (core net profit: down 6%).

As for the O&M deal, Taliworks’ management considers the new terms to be overall positive. 

The five sen/m3 reduction/step-down in the BSR is compensated by a seven-year extension of the O&M tenure, which will now expire in 2036. 

Over the extension period, 100%-owned Sungai Harmoni’s BSR (53 sen /m3) will be 20% higher than the base case of 44 sen /m3. 

“During the results briefing, management guided for a +RM86mil net impact on FY18F net profit. The RM72.3mil bad debt write-off in relation to the 10% haircut to RM723mil accumulated receivables and the resultant tax effect would be offset by a RM186mil writebackof accumulated provision on receivables. 

Assuming that the write-back occurs as a one-off in 4Q18, the net impact would be a 112% boost to FY18F net profit, lifting it to RM163mil. 

“We estimate that the 10% upfront payment of receivables of RM65mil would increase end-2Q18 cash by 70% to RM157mil,” it said.

Subscribe now and receive FREE sooka plan for 1 month.
T&C applies.

Monthly Plan

RM13.90/month

Annual Plan

RM12.33/month

Billed as RM148.00/year

1 month

Free Trial

For new subscribers only


Cancel anytime. No ads. Auto-renewal. Unlimited access to the web and app. Personalised features. Members rewards.
Follow us on our official WhatsApp channel for breaking news alerts and key updates!
   

Next In Business News

Toyota likely to post first profit drop in two years
Strong financial grasp critical for investors
Licence freeze to have impact on Xin Hwa
Gagasan Nadi in RM185mil acquisition
Proton October sales climb 13.6% to 12,799 units
Methane emissions still rising despite promises
Aneka Jaringan wins RM39mil job
TCS bags RM86mil contract
The Philippines to be cautious in policy easing cycle
Ringgit maintains stronger footing at the close

Others Also Read