Taliworks Corporation - A value-accretive M&A play
NOT RATED
Taliworks's main appeal is that after several years of operations since it acquired a highway and secured two water concessions, it is now back in M&A mode. Value-accretive acquisitions, local and domestic, are in the pipeline, backed by its rising post-restructuring cash hoard It is also a beneficiary in Selangor’s post-water restructuring landscape as its O&M contract is likely intact. We expect further re-rating of the stock to be event-driven (M&A, new jobs and asset divestment). Based on a 10-20% discount to our RNAV/share of RM3.29, the stock could offer 38-56% upside. The new 75% payout policy could imply 5-6% dividend yield.
It is also a beneficiary in Selangor’s post-water restructuring landscape as its O&M contract is likely intact. We expect further re-rating of the stock to be event-driven (M&A, new jobs and asset divestment). Based on a 10-20% discount to our RNAV/share of RM3.29, the stock could offer 38-56% upside. The new 75% payout policy could imply 5-6% dividend yield.
Scouting for mature infra assets
Taliwork's business model is mainly concession-based, with over 80% of its pretax profit generated from the two water-related operations and maintenance (O&M) contracts in Selangor and Langkawi. The group is also a contractor for water infra. Additionally, through an acquisition in 2007, the group owns the Cheras-Kajang Expressway, which is profitable. What will more likely appeal to potential investors is the fact that the group is now back in acquisition mode, targeting mature operating infrastructure assets, not only locally but also overseas. This will significantly transform its earnings base and could add a base case RM20m-30m to EBITDA from FY15 onwards.
Net cash if it exits China
Almost all of the group's RM339m total borrowings are related to its China wastewater concessions and, therefore, non-recourse. We do not rule out a potential divestment move as it could generate c.RM200m cash, by our estimates. The cash level has further upside potential, driven by 1) recovery of receivables for the domestic water business, and 2) cash from various companies through its jointly-controlled entities.
Deserves a narrower 10% RNAV discount
In our view, Taliworks deserves to trade at a narrower 10% RNAV discount in contrast to the 20% we apply to Puncak Niaga's SOP. This is in view of the group's aggressive expansion plans, which will transform the company into a major highway and water infra player locally. In the next 6-9 months, we expect the likely re-rating of the stock to be mainly event-driven. The stock peaked to its 52-week high of RM2.02 in Oct 14 but has since de-rated 19% following the global selldown. The share price now offers value.
Source: CIMB Daybreak - 30 October 2014,
NOT RATED
Taliworks's main appeal is that after several years of operations since it acquired a highway and secured two water concessions, it is now back in M&A mode. Value-accretive acquisitions, local and domestic, are in the pipeline, backed by its rising post-restructuring cash hoard It is also a beneficiary in Selangor’s post-water restructuring landscape as its O&M contract is likely intact. We expect further re-rating of the stock to be event-driven (M&A, new jobs and asset divestment). Based on a 10-20% discount to our RNAV/share of RM3.29, the stock could offer 38-56% upside. The new 75% payout policy could imply 5-6% dividend yield.
It is also a beneficiary in Selangor’s post-water restructuring landscape as its O&M contract is likely intact. We expect further re-rating of the stock to be event-driven (M&A, new jobs and asset divestment). Based on a 10-20% discount to our RNAV/share of RM3.29, the stock could offer 38-56% upside. The new 75% payout policy could imply 5-6% dividend yield.
Scouting for mature infra assets
Taliwork's business model is mainly concession-based, with over 80% of its pretax profit generated from the two water-related operations and maintenance (O&M) contracts in Selangor and Langkawi. The group is also a contractor for water infra. Additionally, through an acquisition in 2007, the group owns the Cheras-Kajang Expressway, which is profitable. What will more likely appeal to potential investors is the fact that the group is now back in acquisition mode, targeting mature operating infrastructure assets, not only locally but also overseas. This will significantly transform its earnings base and could add a base case RM20m-30m to EBITDA from FY15 onwards.
Net cash if it exits China
Almost all of the group's RM339m total borrowings are related to its China wastewater concessions and, therefore, non-recourse. We do not rule out a potential divestment move as it could generate c.RM200m cash, by our estimates. The cash level has further upside potential, driven by 1) recovery of receivables for the domestic water business, and 2) cash from various companies through its jointly-controlled entities.
Deserves a narrower 10% RNAV discount
In our view, Taliworks deserves to trade at a narrower 10% RNAV discount in contrast to the 20% we apply to Puncak Niaga's SOP. This is in view of the group's aggressive expansion plans, which will transform the company into a major highway and water infra player locally. In the next 6-9 months, we expect the likely re-rating of the stock to be mainly event-driven. The stock peaked to its 52-week high of RM2.02 in Oct 14 but has since de-rated 19% following the global selldown. The share price now offers value.
Source: CIMB Daybreak - 30 October 2014,
