Taliworks to outperform on strong cash flow, likely concession extension

PETALING JAYA: Taliworks Corp Bhd’s water supply and toll highway concessions would continue to generate recurrent earnings and cash flows to support its high dividend payout.

According to Affin Hwang Investment Bank Bhd, Taliworks is looking to strike a balance between investing for long-term growth while maintaining a high dividend payout (at least 6.6 sen per annum) to reward shareholders.

Its net dividend per share (DPS) of 6.6 sen per share in 2020-2022 gives an attractive net yield of 7.9%, which is sustainable given its strong cash balance of Rm536mil or 27 sen per share as at March 31, 2020, says the research firm.

It added that the group’s Rm391mil debts are mostly non-recourse project financing for its Grand Saga toll highway concessions

“We forecast its core operations to generate an average free cash flow of Rm92mil or 4.5 sen per share per annum in 2020-22,’’ it said.

Affin said the Covid-19 pandemic has adversely impacted the corporate sector, leading to some companies looking to dispose water supply, renewable energy and toll highway concession assets.

Taliworks is in a strong financial position to explore these opportunities to drive longterm earnings growth, it added.

The research house has a “buy’’ call with an unchanged target price of 96 sen per share. The share price closed half a sen up to 84.5 sen yesterday.

It added that there was a possibility of extension of its Langkawi water supply concession which expires in October this year. If the extension is granted, that will improve Taliworks’ cash flows and revalued net asset value.

“With the change in the Kedah government in mid-may, Taliworks is seeking to restart negotiations to extend the concession. There is a possibility for the concession to be extended for an interim period of 9-18 months. This is to facilitate negotiations of a new concession agreement and avoid a disruption of water supply to consumers,’’ it said.