KUALA LUMPUR: Winning new contracts for Taliworks Corporation Bhd's construction division could serve as a catalyst to rerate the company, according to RHB Research.
Another potential catalyst will be an earlier-than-anticipated approval for the tariff increase for its waste management associate.
"Under Budget 2024, RM1.1 billion was allocated for supply issues, especially in Kelantan, Sabah and Labuan. Such solutions may relate to infrastructure like water treatment plants which Taliworks Corporation is currently constructing.
"Henceforth, any new job wins for its construction division could serve as a rerating factor for the stock as the last job win was in December 2021," it said.
The company posted a core profit of RM32 million for the first half of 2024 (1H24), representing 48 per cent of RHB Research's estimates and 46 per cent of the market's full-year estimates.
The growth is attributed to improved construction progress on the Sungai Rasau Water Treatment Plant project and increased traffic volume on its highways anticipated in the second half of 2024 (2H24).
Meanwhile, its construction division reported higher revenue recognition in the second quarter of 2024 (2Q24) totalling RM19.3 million compared to RM7.2 million in the second quarter of 2023 (2Q23).
"This increase is attributed to progress on Packages 2 and 3 of the Sungai Rasau Water Treatment Plant, which reached 15 per cent and 7.0 per cent completion by the end of 2Q24, compared to 11 per cent and 6 per cent in the first quarter of 2024 (1Q24)."
Such progress is considered commendable, leading to 100 per cent year-on-year earnings before interest and taxes (EBIT) growth for the division in 2Q24, it added.
In contrast, the renewable energy division's EBIT fell 21 per cent YoY in 2Q24, partly due to lower insurance claims compared to 2Q23.
Moving ahead, the completion of solar panel replacements in July would enable energy efficiency levels to be close to 100 per cent of declared annual availability, RHB Research said.
The firm made no changes on Taliworks Corporation's earnings estimates as its results are in line with the investment bank's expectations.
RHB Research kept a "Buy" call on the company, with a target price of 98 sen.
"We favour Taliworks for its undemanding valuation and attractive financial year 2025 dividend yield," it added.