Cypark rides on renewable energy wave

Daud: ’RE is something that every country has to do eventually.’

THE growing emphasis on renewable energy in Malaysia is a boon for Cypark Resources Bhd.

The green energy and engineering solutions provider - which has seen the reemergence of the Employees Provident Fund (EPF) as a substantial shareholder in recent months – is said to stand a good chance to bag some potential government projects that will be rolled out under the country’s development blueprints such as the 11th Malaysia Plan (11MP).

According to the two brokerages that cover Cypark, namely Public Investment Bank and CIMB Research, the company is well positioned to edge out its competitors in future tenders for renewable energy projects, particularly in the large-scale solar (LSS) and waste-to-energy (WTE) sectors, given its technical expertise and experience in those areas.

And acknowledging the opportunities arising from the renewable energy and green technology sector in the country, Cypark group chief executive officer Datuk Daud Ahmad even says the company is anticipating its growth to remain sustainably robust in the coming years.

“Cypark expects to deliver good growth in its future revenue from renewable energy in line with its business plan.

“Our confidence is based on the industry’s promising growth prospect until 2020 and beyond,” the group’s chief executive officer Datuk Daud Ahmad tells StarBizWeek.

As it is, various initiatives have been launched in recent years by the Government to promote Malaysia’s renewable energy agenda.

These include the introduction of the feed-in-tariff (FiT) mechanism under the country’s Renewable Energy Act (2011); the implementation of the Solid Waste and Public Cleansing Management Act (2007) in 2011; and proposed implementation of 500MW net metering programme, which would further promote the use of solar energy in the country.

As stated in the 11MP, the Government’s goal is to boost the country’s electricity generation capacity through renewable sources, including biomass, biogas, solar photovoltaic and mini hydro to 2,080MW by 2020.

At present, the total installed renewable energy capacity in the country is estimated at only 985MW.

Green potential

Having earmarked more than RM500mil since 2015 for investments in green technology and renewable energy projects over the next three years, Cypark is currently looking to expand beyond its current capabilities in solar and WTE technologies to other forms of renewable energy.

“Apart from our plan to be involved in more solar and WTE projects, we are also keen to expand our business to other types of renewable energy, including biomass and biogas,” Daud says.

“We are also developing further our green technology products and services which we expect to start contributing to our top line numbers by next year,” he adds.

According to Daud, Cypark’s Smart-WTE in Ladang Merah, Negeri Sembilan, is progressing well, with commercial operation expected to start by late 2017.

The project is a 25-year concession to exclusively manage waste generated in the state, and it comes with an input capacity of 1,000 tonnes per day and a design capacity 20MW per hour.

“By 2018, this 25 years concession project will start contributing around RM80mil to our annual revenue in addition to current renewable-energy revenue of about RM40mil per year,” Daud says.

He further notes that the company is well on its way to transform a major portion of its earnings to be derived from recurring and concessionaire type of projects, rather than rely on short-to-mid term contracts, to ensure stable and sustainable growth of the company.

Daud is the second largest shareholder in Cypark, with a 16% stake in the company, after the group’s executive chairman Tan Sri Razali Ismail, who has 20.1% interests.

Other major shareholders in Cypark are Lembaga Tabung Haji, with a 8.9% stake; and the EPF.

The EPF, which ceased to be a substantial shareholder in the company two years ago, has reemerged as a substantial shareholder in Cypark since August 2016 ago after raising its stake in the company to more than 5%. The largest pension fund of Malaysia, which has been buying into the company in recent months, now owns a 5.5% stake in the company.

“That the EPF has increased its stake in Cypark is a sign that of growing confidence in the group’s prospects,” CIMB Research analyst Saw Xiao Ju says.

Saw, in his report dated Sept 30, said Cypark’s earnings would benefit in the longer term from the group’s participation in more WTE projects in Malaysia.

“Cypark has an advantage in future WTE project bids, as it is the only WTE concession owner in Malaysia,” he wrote.

In its recent filings with Bursa Malaysia, Cypark noted the Government’s recent decision to call tender for a new WTE project in Kepong, Kuala Lumpur, was an indication of its commitment to develop more modern waste-management facilities to replace current landfilling practices.

This would undoubtedly provide more opportunities for the group to grow its business. However, according to Saw, the market has failed to fully appreciate the potential of Cypark’s WTE project due to the lack of understanding of its earnings prospects.

‘Add’ rating

CIMB Research has rated Cypark’s shares an “add” with a target price of RM2.30.

Similarly, Public Investment Bank has rated the counter an “outperform”, with a higher target price of RM2.56.

“We continue to like Cypark premised on its pioneering position and technical expertise in green technology, which provides higher potential for the company to secure more renewable energy projects,” the brokerage said in its recent report on the company.

In the LSS programme, for instance, Public Investment Bank said: “Cypark could stand a better chance to be a frontrunner for LSS project due to its technical expertise and experience.”

The Energy, Green Technology and Water Ministry (KeTTHA) early this year announced it would be calling for a request for proposal (RFP) for the development of 250MW solar generation capacity this year.

In March, the Energy Commission called for submission of competitive bidding for the development of the LSS photovoltaic plant, with the capacity tendered ranging from 1MW to 50MW for a target aggregate capacity of 200MW for Peninsular Malaysia and 50MW for Sabah.

Cypark’s shares closed two sen lower yesterday at RM2.03. Year-to-date, the counter has gained 18 sen, or 9.7%.

The company posted a net profit growth of 9.8% to RM38.78mil for the nine months ended July 31, 2016, from RM35.33mil in the corresponding period last year on lower finance costs and foreign exchange gains.

During the period in review, the group saw its revenue increase 9.8% to RM215.33mil from RM196.11mil in the previous corresponding period, with growth driven primarily by its environmental engineering and, green tech and renewable energy segments.