KUALA LUMPUR: CIMB Equities Research continues to like Cypark Resources Bhd
for its cheap valuation and raised its sum-of-parts based target price to RM2.95 as it rolled over its valuation to FY19F.
It said on Tuesday that at only 8.3 times FY18F price-to-earnings (P/E) currently, the stock is the cheapest utilities stock under its coverage.
“It is also a good proxy for investors seeking exposure to the Malaysian renewable energy sector, in our view.
“Key downside risks to our Add call are weaker-than-expected earnings from its environmental engineering division and waste-to-energy (WTE) plant in FY18F,” it said.
CIMB Research said FY10/17 core net profit its expectations, rising 14% on-year on strong revenue growth of 7% on-year and lower-than-expected operating costs.
The steady sales growth was mainly attributed to the environmental engineering (EE) division due to contributions from Ladang Taman Merah and new projects.
The tax rate was higher on-year after additional tax provision was made for non-tax exempted projects during the current financial year.
The 4QFY17 revenue declined marginally by 5% on-year, as the weaker sales in the EE division (-17% on-year) more than offset the higher revenue in landscaping & infrastructure, maintenance and renewable energy divisions.
Nonetheless, EBIT and core earnings were higher due to stronger profitability across the board. Its major EBIT contributor – the EE division (64% of FY17 EBIT) - recorded 35% on-year growth, lifted by newly secured projects and cost savings achieved through value engineering.
The research house also said Cypark Resources secured a contract in November from the Energy Commission to build a large-scale solar PV plant of 30 MW at Empangan Terip, Negeri Sembilan.
This project is not expected to have any material impact on Cypark's FY18 earnings but is expected to contribute positively to FY19’s earnings.
“According to our estimate, the 30MW solar plant will likely generate revenue of RM20mil per annum.
“We expect Cypark’s earnings to jump significantly in FY18F, as Phase 1 of its WTE project should commence operations in 1QCY18.
“The WTE plant is expected to generate stable revenue of c.RM80m per annum over a 25-year concession.
“The completion of the WTE plant would be a key milestone for the company as the plant is the single-largest investment that it has ever undertaken.
“Cypark also aims to raise renewable energy revenue to RM300mil by FY20F, from RM50mil in FY17,” it said.
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