Taliworks ‘dividend Splash’ in the works?

PETALING JAYA: Taliworks Corp Bhd does not fully discount the possibility of a special dividend in anticipation of the settlement of the Selangor water restructuring issue by April, although it prefers to reward shareholders through sustainable growth in dividend rather than any one-off special dividend after recouping the trade receivables.

According to HLIB Research, Taliworks is expecting to recover the trade receivables owed by Pengeluar Air Sungai Selangor Sdn Bhd (Splash) post completion of the water sector restructuring, most probably through a multi-year repayment scheme with interest accrued on any outstanding balance.

As at Sept 30, 2016, Taliworks had trade receivables owed by Splash amounting to RM471 million and this amount is about 26% of the former’s market capitalisation.

“The settlement of Selangor water sector restructuring has never been closer and we believe this will be the key rerating catalyst. Besides, there is also a potential upside from the issuance of a special dividend should the deal push through,” HLIB said in its report yesterday.

The research house said Taliworks expects the Selangor water sector restructuring to be settled by April, as an independent valuation has been carried out to determine the value of Splash according to its net book value. The valuation was reported to have been concluded last month.

“Management believes the resulting valuation of Splash should approximate its net book value, which is about RM2.8 billion according to the latter,” HLIB said.

Meanwhile, the operations and maintenance agreement of Sungai Harmoni (SSP1) is expiring in 2030 and Taliworks is looking forward to decreasing the bulk sale rate post completion of water sector restructuring in return for extension of the agreement.

“Management expects that this exercise is net present value (NPV) neutral and hence we maintain our forecast,” said HLIB.
It added that the Taliworks concession of managing water supply in Langkawi is expiring in October 2020 and management is pursuing alternatives to extend the concession. The net profit contribution from Langkawi water concession is about RM15 million annually.

HLIB has maintained a “buy” call on Taliworks with a target price of RM1.85.