Taliworks on full flow despite hitch

WATER treatment and supply contractor Taliworks Corp Bhd is favoured by investors for its stable earnings and dividend yields.

It also has businesses in highway toll concessions, waste management, engineering and construction, and renewable energy.

Due to its exposure to essential infrastructure segments, the group has been able to weather market volatility.

Nonetheless, the group started the year on a softer footing, with net profits dipping by 30% year-on-year (y-o-y) in the first quarter of financial year 2025 (1Q25).

This was mainly due to lower-than-expected sales of treated water and the construction progress of the Sungai Rasau water project.

Despite this, executive director Kevin Chin Soong Jin says the group remains optimistic on its performance in financial year 2025 (FY25), backed by the company’s track record in water infrastructure and a well-diversified portfolio.

“Our core segments are expected to continue to generate recurring income and provide a stable earnings base,” he tells StarBiz 7.

The water treatment and supply segment, while having experienced some weakness since FY24, remains a key earnings contributor for Taliworks.

“The long-term bulk water supply agreement (BWSA) for the Sungai Selangor Water Treatment Plant Phase 1 (SSP1) project continues to generate stable cash flow,” Chin adds.

Chin says there is increasing demand from data centre developments, foreign direct investments and large-scale urban expansion.

“Our previously stated capacity to undertake up to RM2bil worth of water infrastructure contracts remains intact,” he adds.

The company, however, does not have any data centre-related projects in hand.

It is currently handling several key water infrastructure projects.

Taliworks operates the SSP1 plant that treats and supplies potable water to large parts of Selangor and Kuala Lumpur.

The company is also working on Packages 2 and 3 of the Sungai Rasau Water Supply Scheme Phase 1 development for Air Selangor, which involve constructing pumping stations and reservoirs.

These packages, with a combined contract value of RM910.3mil, are behind schedule, but are expected to be completed by November 2026 and March 2027, respectively.

Treated water sales from SSP1 dropped in 2024 and 1Q25.

Chin attributes the decline to the rationalisation of the distribution system by Air Selangor to some areas previously served by SSP1.

These are now partially supplied by the Langat 2 Water Treatment Plant.

“The lower production was cushioned by an increase in the bulk water supply rate (BWSR) on Jan 1, 2024 as provided under the BWSA,” he says.

Chin adds that production from SSP1 is expected to “improve significantly” with the completion of a new pumping system, targeted for 2026, adding that there is growing demand for treated water in the north, as well as specific zones in Klang and Kuala Selangor.

This increased demand is driven by major infrastructure projects such as the East Coast Rail Link and the Eco-Industrial Park in Puncak Alam and Kuala Selangor.

A “key flagship infrastructure project” of Taliworks, Sungai Rasau’s slower-than-expected progress is due primarily to delays in obtaining regulatory approvals, a challenge common to large infrastructure projects.

Chin maintains that while the delays may defer revenue recognition, they are not expected to significantly impact overall profit margins or cash flow as the contracts are based on measured work done.

In March, the National Water Services Commission (SPAN) said new water tariffs will be implemented by July 1, including a higher tariff category for data centres.

However, Chin says the company does not expect any direct impact on revenue or profitability as its SSP1 Water Treatment Plant operates under a BWSA with Air Selangor, which includes a fixed BWSR that is independent of end-user tariff changes imposed by SPAN.

He adds that the tariff adjustments may indirectly benefit Taliworks as a strong financial position for Air Selangor could spur greater investment in water infrastructure.

Under its highway segment, Taliworks owns and operates two highways, specifically Grand Saga Highway and Grand Sepadu Highway.

The highway segment saw a marginal decrease in revenues in 1Q25 due to festive toll discounts (for Grand Saga highway) and higher repairs and maintenance expenses incurred, despite growth in average daily traffic (ADT) on both highways.

Chin points out that the Grand Saga highway continues to perform well with rising traffic volume.

The highway’s ADT exceeded projections by 1.8% and grew 3.8% in 2024 compared with 2023.

“The Grand Saga highway’s location allows it to benefit from developments occurring along and beyond the highway, as well as traffic travelling to and from the SUKE Expressway, which further contributes to its increased usage.

“The SUKE Expressway has also helped alleviate some of the peak period traffic congestion and has provided impetus for strong traffic growth,” he says.

In contrast, Grand Sepadu highway’s ADT growth is more “modest”, he says.

This is primarily due to its higher dependency on commercial vehicles travelling to and from the Northport and Westport terminals, as well as the residential traffic within the vicinity of the highway.

Chin says Grand Sepadu highway’s ADT was slightly below projections by 0.8% for 2024, mainly impacted by the opening of the Persiaran Astana flyover which led some traffic towards the North Klang Valley Expressway.

Nonetheless, the highway recorded an ADT growth of 1.5% y-o-y in FY24.

“The progressive completion of the West Coast Expressway presents a potential boost for the Grand Sepadu highway, as it could increase traffic flow contributing to further growth in traffic volumes,” he says.

One segment facing challenges is the waste management division, operated through 35% associate SWM Environment Holdings Sdn Bhd, which does public cleansing and solid waste collection.

Losses from this business though are narrowing.

“The financial impact from this segment could improve, with a key factor being securing a tariff adjustment with the government,” explains Chin.

Currently, the company is also engaged in discussions with authorities to restructure toll rates.

The company had seen a slight dip in its dividend payments over the last few years.

The stock now trades at a price-to-earnings ratio of 18.68 times, giving it a market capitalisation of RM1.28bil and a dividend yield of 6.35%.

“We are now focusing on reinvesting a larger portion of our profits to fund growth and expansion of operations as well as to strengthen our financial position,” says Chin, adding that the company’s dividend policy is to distribute at least 75% of consolidated profit after tax.