WTE/LSS 2 plants’ COD likely by end-Sep
? 1HFY10/22 core earnings fell 15% yoy and came in below expectations, on
weaker-than-expected RE division profits which offset higher WTE profits.
? WTE and LSS 2 plants likely to achieve COD by end-Sep 22; LSS 3
scheduled for completion in Dec 22. Reiterate Hold with a lower RM0.39 TP.
Key results highlights
Cypark’s 1HFY10/22 core net profit came in below expectations, at 29% of our and 30%
of Bloomberg consensus full-year estimates due to weaker-than-expected Renewable
Energy (RE) division performance. 1HFY22 core net profit fell 15% yoy mainly due to
weaker pretax profit at RE unit (-34% yoy due to project completion/near-to-completion)
and higher distribution to holders of perpetual sukuk (+24% yoy on higher drawdown),
which offset the stronger performance by the Waste Management & Waste-to-Energy
(WTE) segment due to resumption of work following testing and commissioning stage.
Weaker performance at RE as LSS 2 projects near completion
2QFY22 revenue and core earnings declined 12% and 26% yoy, respectively, dragged
down by weaker RE performance (revenue: -66% yoy, pretax profit: -68% yoy) due to
lower construction revenue from LSS 2 turnkey projects, as Sik Project was completed in
1QFY22 and the other two turnkey projects at Kelantan were nearing completion. This
mitigated the higher pretax profit from the WTE division (RM9m vs. RM3m yoy)
supported by work progress and additional specialist works. Qoq, 2QFY22 core earnings
declined 10% vs. 1QFY22, mainly attributed to lower work progress at LSS projects.
Project progress update
We gather its 20MW WTE plant at Ladang Tanah Merah should achieve commercial
operation date (COD) by end-Sep 22, as testing and commissioning (T&C) is ongoing
and waste segregation & recycling facilities have been tested and are ready to handle
incoming solid waste. Its 30MW large-scale solar 2 (LSS 2) plant will likely achieve COD
by end-Sep 22, and its 100MW LSS 3 project in Terengganu is scheduled for completion
in Dec 22. Cypark targets to secure some engineering, procurement, construction and
commissioning (EPPC) contracts from the LSS 4 winners.
Reiterate Hold
We cut our SOP-based TP to RM0.39 as we ascribe a lower P/E of 10x (vs. 14x
previously) for its non-RE business to reflect the updated sector average P/E for smaller
contractors. Cypark’s share price has fallen by >50% since end-Apr; we believe this was
due to concerns over whether it could meet its debt obligations and over the stake
disposal by its major shareholders. Cypark has denied allegations made by a viral report
circulated in various blogs/websites that it is concealing information deemed pertinent to
investors. While its valuation seems cheap at the moment, we see risks from weaker
investor sentiment (due to the viral report), potential further delays in its plants’ COD, and
potential cash call/asset disposal to fund future projects. Retain Hold.