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CYPARK (5184) : Cypark Resources Bhd - Greener by the year

Target RM3.09 (Stock Rating: ADD)

Cypark's 4Q14 core net profit of RM6.4m brought its 12M core net profit to RM39.9m, which was below our expectations as it accounted for only 87% of our full-year forecast. The variance came from weaker-than-expected earnings from the environmental engineering division. Nonetheless, we remain positive on its earnings prospects, underpinned by its solar projects, which contributed 14% towards Cypark's FY14 revenues, up from 9.5% in FY13. Despite the weaker results, we make no changes to our EPS estimates for FY15-17. We maintain our Add call on the stock, with an unchanged SOP-based target price of RM3.09. We think the announcement of more renewable energy (RE) projects will catalyse the stock.

4Q14 results review
Cypark's 4Q14 revenues declined 11.8% yoy as its environmental engineering division's revenues fell 51% yoy. The decline in revenue was mainly due to the wrapping up of phase 1 of one of its projects while phase 2 will only commence in FY15. Its other divisions continued to show improvement, particularly its renewable energy division, where revenues surged 41% yoy to RM8.2m in the 4Q14 as Cypark continued to expand its capacity. For the full year, Cypark's revenue increased by 7.4% yoy to RM237m while core net profit grew by 11.2% to RM39.9m, driven by tax savings from RE-related tax incentives. No dividends were declared which is unsurprising as Cypark declares dividends post AGM.

More RE projects to come
We expect more RE projects to be secured by Cypark in 2015 as the government aims to increase contribution from RE sources to 10% of total generation capacity by 2020. This implies that there will be more projects beyond the feed-in-tariff (FiT), which will give opportunities for Cypark to expand its RE capacity further. We expect its main focus to be on solar projects although we do not discount the possibility of other types of RE, such as biomass or biogas, which it is currently executing at Ladang Tanah Merah (LTM).

Ladang Tanah Merah to add to RE capacity
Cypark's LTM project will add more RE capacity as it will produce electricity using biogas and biomass generated from the waste that it collects.

Source: CIMB Daybreak - 02 January 2015
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