This article first appeared in The Edge Malaysia Weekly on October 7, 2019 - October 13, 2019

A casualty in the long-drawn-out Selangor water saga, Taliworks Corp Bhd endured non-payment of a substantial amount of debts previously over the past decade, but has now reached an amicable settlement.

A portion of its profits from the Sungai Selangor Water Treatment Plant Phase 1 (SSP1) was stuck at the receivables stage because it was unable to collect payment from its then direct client Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (SPLASH).

Consequently, the infrastructure company has had to make allowance for loss on receivables over the last eight to nine years.

In August last year, the Selangor water restructuring saga finally came to an end when Pengurusan Air Selangor Sdn Bhd became the sole licensee for water treatment and distribution, bringing welcome relief to Taliworks.

With the settlement of outstanding receivables due from SPLASH and a strong balance sheet, Taliworks’ management will now focus on exploring strategic value-accretive merger and acquisition opportunities and new infrastructure projects.

Executive director Datuk Ronnie Lim Yew Boon says it is “absolutely a huge relief” to have completed the renegotiation of a new operation and maintenance (O&M) agreement for SSP1.

“The outstanding receivables amount to RM796 million. We agreed to a haircut of 10%, which works out to a settlement sum of RM716 million. We have just received the first payment of 10%, which is RM71.5 million, on Sept 26,” he tells The Edge in an interview.

The balance will be paid over nine yearly instalments, with amounts outstanding to be charged interest of 5.25%.

“As the water saga has ended, Air Selangor will be our direct client, and they will also be the guarantor of our settlement sum,” he says.

SPLASH was a concessionaire and supplier of treated water to Syarikat Bekalan Air Selangor Sdn Bhd (SYABAS), a water distributor then controlled by Puncak Niaga Holdings Bhd. SYABAS claimed it was deprived of a tariff hike for 13 years and was, therefore, unable to pay its concessionaires, including SPLASH.

Taliworks was indirectly affected as a consequence. The rest is history, he says, but the group is ready to move on.

“We gave a five sen reduction in our bulk supply tariff across the board and, in return, we got to extend our O&M contract for another seven years, from 2029 to 2036.”

SSP1 generated an annual revenue of about RM170 million to RM180 million in the financial year ended Dec 31, 2017 (FY2017) and FY2018.

“Taliworks’ positioning is its expertise in concession ownership and O&M. If we didn’t do a good job, there is no way that we will get a contract extension,” Lim says.

Under the new O&M agreement, Air Selangor is obliged to pay Taliworks the full amount every month without withholding any amount, as was its experience under SPLASH.

“The SSP1 will generate strong cash flow for us. There is no more uncertainty that they will not pay us the full amount. They are obliged to pay us within 60 days,” he adds.

Taliworks chief investment officer Kevin Chin says the settlement agreement and the new O&M agreement could be the “biggest game changer” for Taliworks in the coming years.

With the settlement sum, as well as the guaranteed payment by Air Selangor, Taliworks’ cash flow and profits are expected to improve significantly, bumping up its dividend payout potential. “In the past, we have been paying out 4.8 sen per share every year. With the new cash flow coming in, we are confident to increase our dividend per share (DPS) by 30% to 50%,” says Chin.

He adds that Taliworks has been paying dividends on a quarterly basis because it wants to be known as a company with a sustainable dividend payout ability.

“There is no point in paying out a one-off special dividend. We are raising our bar over the long term. Our dividend policy is 75% of normalised profits, but we have been paying more than that over the years,” says Chin.

With a higher DPS, he says, Taliworks’ estimated dividend yield will be as high as 6% to 7% — up from 5% currently — which is much better than fixed deposit rates.

Meanwhile, Taliworks is also exploring new business opportunities in renewable energy, namely solar and waste-to-energy.

Chin points out that the opportunity in solar is more than just the third cycle of large-scale solar (LSS3), which Taliworks has resolved not to participate in. “We are also looking at rooftop solar and other off-grid power system and supply opportunities. It’s good that our government has announced the liberalisation of the power industry, which will create many new avenues and opportunities for us.”

Taliworks is a pure play infrastructure company with four core businesses: water treatment, supply and distribution; highway toll concessionaire, operations and maintenance operator; waste management; as well as engineering and construction.

In FY2019, the group’s net profit grew 69% to RM109.26 million, against RM64.54 million a year ago.

Year to date, shares of Taliworks have gained 15% to close at 91 sen last Thursday, valuing the company at RM1.834 billion.

Datuk Lim Chee Meng is the controlling shareholder of Taliworks with a 53.82% stake, 49.89% of which is held through LGB Holdings Sdn Bhd — an investment vehicle of the LGB Group. He is the son of the late Datuk Lim Geok Bak, who founded LGB Group in 1978.

Vijay Vijendra Sethu is the second largest shareholder of Taliworks with a 9% stake.

At the shareholder level, Taliworks is no stranger to the power sector, and is now set on renewable energy as a new area of exploration.

“Our shareholders used to own a substantial stake in a 650MW gas-fired CCGT (combined cycle gas turbine) plant in Perlis and our top two shareholders have been major shareholders in one of the largest renewable energy players and the biggest wind power firm in Australia,” Chin says.

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