Taliworks Betting On Air Selangor Projects

RHB Investment Bank Bhd (RHB Research) has reiterated its BUY call on Taliworks Corporation Bhd with a revised target price of RM1.01, up from RM0.98, projecting a 49% upside alongside a forecast dividend yield of around 7% for FY26. The valuation is supported by the counter's undemanding EV/EBITDA levels—currently two standard deviations below its five-year mean—and a domestic-centric business focus.
However, Taliworks' 1Q25 core profit of RM10.5 million, down 30% year-on-year, came in below expectations, representing just 12% of RHB's full-year forecast.
The research house attributed the earnings miss to weaker-than-anticipated metered water sales and slower construction progress at the Sungai Rasau water treatment plant. The project's first stage packages 2 and 3 have reached 24% and 11% completion respectively by end-1Q25, showing improvement from a year earlier, yet progress still lagged internal projections.
While RHB Research still expects project completion by 2027, annual construction momentum is now likely to be backloaded towards the final year, prompting downward revisions to progress billings for FY25 and FY26, though upward adjustments were made for FY27.
The water treatment and supply division saw a 5.4% decline in EBIT during the quarter due to Air Selangor's reallocation of surplus water from the southern to the northern region of Selangor. RHB has revised its earnings forecasts for FY25 to FY27 by -7%, -3%, and +3% respectively, incorporating more conservative assumptions for metered water sales under the new water distribution policy. This reassessment, along with a roll-forward of its valuation base year to FY26, contributed to the increase in the target price.
Highway operations, while seeing improved average daily traffic at Grand Saga and Grand Sepadu, were impacted by a 50% toll discount offered during festive periods and higher maintenance costs. The renewable energy segment posted flat EBIT as revenue gains were offset by reduced sundry income.
Meanwhile, the group's waste management associate posted deeper operating losses of RM7.7 million in 1Q25 compared to RM5.6 million a year earlier, due to softer profits from the associate's own operations.
Taliworks has not secured new construction contracts since December 2021, but RHB noted that Air Selangor's plans to build four new water treatment plants by 2030 may offer upside. Job wins from these projects, along with a faster-than-expected tariff hike for the group's waste management associate, could serve as rerating catalysts for the stock. Related

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