Target RM2.37 (Stock Rating: Add)
Cypark's 1Q15 core net profit of RM8.5m was below our expectations, accounting for only 16% of our full-year FY10/15 earnings forecast. The main reason for the variance was the higher-than-expected operating costs, which we now impute into our forecasts. Our FY15-17 EPS estimates are reduced by 32-33% as a result of our lower net profit forecasts and the higher share base as Cypark has completed its private placement. Hence, our SOP-based target price is cut to RM2.37 (from RM3.09). Despite the weaker-than-expected results, Cypark remains the best proxy for renewable energy (RE) exposure in Malaysia. We thus maintain our Add call. Securing more RE projects will act as a rerating catalyst for the stock.
1Q earnings grew 10.4% yoy
Cypark's revenues in the 1Q15 grew by 16.4% yoy, driven mainly by strong performances from its landscaping and infrastructure division and renewable energy division, which expanded 90.5% and 14% yoy, respectively. The strong yoy growth for its infrastructure division was mainly due to the various construction projects that Cypark undertook while its renewable energy revenues continued to grow in tandem with its RE capacity expansion. This was dragged down by its environmental engineering division, where revenues declined by 11.9% yoy as it reached the final stage of the first phase of its Ladang Tanah Merah (LTM) project. Construction on phase 2 of the project is set to commence in 2QCY15. Overall, 1Q15 earnings grew by 10.4% yoy.
Phase 1 of LTM complete
Cypark's LTM concession is expected to begin given the almost-completed status of Phase 1 of the project. The concession period is for 25 years, during which Cypark will open, maintain and close the landfill in Negeri Sembilan. Cypark will generate tipping fees of RM30-40/MT for every MT of municipal solid waste (MSW) that the landfill collects. The second phase will involve a waste-to-energy (WTE) plant that will use the waste collected as feedstock for electricity generation.
Expecting stronger quarters
Despite the disappointing earnings, we expect Cypark to deliver stronger earnings in the coming quarters as it continues to expand its RE capacity.
Source: CIMB Daybreak - 01 April 2015
