RHB Investment Bank Bhd (RHB Research) has maintained its BUY recommendation and target price of 98 sen for Taliworks Corp Bhd after Taliworks' core profit of RM46.4 million for the first nine months of 2024 (9M24) was in line with the research house's expectations.
This figure accounts for 70% of the full-year forecast, supported by improved construction progress at the Sungai Rasau Water Treatment Plant (WTP) and a solid performance from the company's highway operations.
The third quarter ended Sept 30, 2024's (3Q24), results showed a 16% year-on-year growth in core earnings, bolstered by a 21% increase in earnings before interest and tax (EBIT) from the water treatment and supply division. This was primarily driven by a tariff hike that raised the bulk water supply rate to 48 sen per cubic metre from 42 sen, according to RHB Research.
The toll highways, particularly the Grand Saga and Grand Sepadu highways, saw a 3.1% and 1.8% growth in average daily traffic, respectively. Additionally, the toll compensation received from the government amounted to RM55.4 million for Grand Saga and RM38.7 million for Grand Sepadu, which significantly contributed to over 100% year-on-year EBIT growth for the toll division, as highlighted by RHB Research.
However, Taliworks faced some challenges in 3Q24, particularly in its waste management associate, which reported a widened loss of RM9.2 million due to higher provisions for receivables. Furthermore, its renewable energy division experienced an operating loss of RM10.5 million due to increased rehabilitation and maintenance costs, as well as the write-off of certain property and equipment.
The construction arm also saw higher revenue recognition, particularly from the Sungai Rasau WTP project, although EBIT dropped 44% due to the completion of the Langat 2 project a year ago.
Despite these mixed results, RHB Research has maintained its earnings estimates for Taliworks. The stock's valuation remains undemanding, trading at over two standard deviations below its five-year mean EV/EBITDA.
The company is expected to benefit from strategic water projects in Selangor, including the development of new water treatment plants, which could present further opportunities for its construction segment.
