RE, WTE segments to drive Cypark’s near-term growth

by NURUL SUHAIDI / graphic by TMR

CYPARK Resources Bhd’s pretax profit from sale of electricity and deferred turnkey payment is expected to grow by a three-year compound annual growth rate (CAGR) of 17%, to RM42 million by the financial year 2023 (FY23E), contributing 27% of the group’s pretax profit.

Maybank Investment Bank Bhd (Maybank IB) analyst Nur Farah Syifaa’ Mohamad Fu’ad said Cypark’s near term growth would be derived from the renewable energy (RE) and waste-to-energy (WTE) segments.

“Its waste management and WTE segment is expected to contribute RM14 million, which is 10% of the group’s pretax profit.

“We expect its net profit to grow by a three-year (FY20-FY23E) CAGR of 18%,” Nur Farah Syifaa’ wrote in a research report recently.

Apart from solar, Cypark is expected to kick start its first WTE plant in FY22 through developing the first WTE plant in Ladang Tanah Merah, Negri Sembilan.

The plant is currently scheduled for commercial operation by December 2021, delayed from July 2021.

Nur Farah Syifaa’ also noted that Cypark is seeking bids for two further WTE projects in Johor and Melaka.

To date, she said the company is growing its recurring income by managing, owning and operating 18 domestic solar farms, with a total installed capacity of 40MW, alternating current (MWac).

Upon completion of its large-scale solar 2 (LSS2) and LSS3 projects, she said Cypark will be managing and operating a combined solar capacity of 230MWac by FY22, from 40MWac currently, a fivefold increase in capacity.

Maybank IB initiated coverage with a ‘Buy’ rating, and target price (TP) of RM1.35, or FY22 price-to-earnings ratio of eight times.

Nur Farah Syifaa’ derived the TP based on a sum of parts valuation, considering solar photovoltaic (PV) and WTE based on discounted cash flow-valuation, while construction-related income is based on sustainable orderbook value of RM200 million.

“Its profit margins remain attractive, sustaining above 20%. Cypark currently trades at 8.8 times FY21E PER, a steep discount compared to its solar peers that are trading at 13.5 times PER,” she said.

Upside risks include sizeable job wins from engineering, procurement, construction, commissioning work for LSS4 and Net Energy Metering, and future LSS project rollouts; growing portfolio of power generation capacity such as solar PV, biogas and biomass; and securing more WTE projects.

Downside risks are delay in commencement of its solar and WTE plants, weather conditions and increase in price for solar panels and inverters.

Cypark shares rose four sen to RM1.03 at close of trading last week, valuing the company for RM519 million.


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