Favorite Links

Friday, March 31, 2017

CIMB Research retains Add for Cypark

Friday, 31 March 2017 | MYT 8:55 AM

An aerial view of the Cypark Suria Pajam Renewable Energy Park in Negri Sembilan.

KUALA LUMPUR: CIMB Equities Research is retaining its Add for Cypark Resources as it expects the earnings per share (EPS) to grow by 50% in FY18, driven by the contribution from the waste-to-energy (WTE) plant in Tanah Merah, Negeri Sembilan.

It said on Friday this could potentially re-rate Cypark’s share price. The key risk to its call is lower-than-expected earnings from the WTE plant.

Cypark’s 1QFY10/17 core net profit met VIMB Research’s expectation as it accounted for 25% of its full year forecast. However, it was only 21% of consensus full-year forecasts.

“The 1Q17 core net profit rose 27% on-year, driven mainly by a better performance in the environmental engineering and renewable energy divisions,” it said.

CIMB Research kept its earnings forecasts, Add recommendation and sum-of-parts based target price of RM2.40.

It pointed out that excluding the unrealised foreign exchange loss of RM300,000, the 1Q17 core net profit rose 27% on-year to RM12mil. The stronger earnings were driven mainly by a better performance in the environmental engineering (EE) division and green tech & renewable energy (GTRE) division.

The EE’s operating profit jumped 47% on-year to RM12mil, thanks to increased external and internal projects while GTRE’s operating profit rose 21% on the back of higher tipping fees generated from the landfill operation in Tanah Merah.
However, in 1Q17, the share of pretax profit contributed by internal projects dropped to 41% from 74% in the same quarter last year. The internal projects mainly refer to the
WTE plant which Cypark is both the owner and the contractor.

The lower share of profit is a positive development as it suggests that Cypark is capable of winning more external jobs in the future to offset the decline in earnings from internal projects once the WTE plant is completed by the end of this year.

CIMB Research said Cypark intends to win more external contracts to grow its construction earnings. It is confident in securing more government contracts for landfill closures and new sanitary landfill projects.

It said Cypark has also submitted many tenders and proposals worth more than RM2bil. It is optimistic that some of the tenders at an advance stage of negotiation could be secured this year.“Cypark aims to grow its renewable energy revenue to RM300mil by 2020, which implies a more than doubling of its current renewable energy portfolio.

“Cypark’s renewable energy revenue was only RM49mil in FY16. This, plus the potential revenue of RM80mil per annum from the WTE plant, would result in total revenue of only c.RM130mil per annum. We expect Cypark to be more aggressive in its participation in tenders related to renewable energy going forward.

“Even without future additions to Cypark’s renewable energy portfolio, we believe the stock is undervalued. We currently value Cypark’s WTE plant at only RM522mil, slightly lower than its book value of RM540mil as at end-FY16.

“We choose to be conservative as the plant may only start to contribute earnings in FY18 and Cypark has not disclosed much detail on the profitability of the plant. However, our SOP-based target price and dividend yield forecast indicate a potential 10% return on the stock’s current price,” said CIMB Research.


No comments:

Post a Comment