Cypark shares beaten down

Cyparks renewable energy park in Pajam

SINCE early this month, Cypark Resources Bhd’s share price has been under selling pressure. On a year-to-date basis, the counter is down almost 55% from 90 sen per share to 40 sen as of yesterday closing.

The selling of the renewable energy (RE) group’s shares further intensified this week, prompting Bursa Malaysia to suspend short-selling of Cypark shares after the latter’s share price dropped more than 15% on May 24.

This week alone, Cypark’s share price dropped more than 41% from 69 sen a piece on Monday to as low as 36 sen, before recovering to 40 sen at yesterday’s close.

Market observers have raised their concerns on whether the group can sustain its ballooning debt level of RM1.4bil, especially at a time when the spike in raw material prices could impact its margins. The debt was five times higher than its market capitalisation of RM241.57mil.

Some also argue that Cypark’s bond ratings were at risk, which had added to the selling pressure this week.

Group chief executive officer Datuk Daud Ahmad speaks to StarBizWeek to clear the air about its outlook and the debt situation.

He says the group has made an effort to engage with its bondholders and fund managers on Wednesday morning. He adds that the group had also engaged with rating agency RAM Ratings Services.

At the meetings, he concurs that the group would be able to gain support from its bondholders and RAM Ratings to maintain the current ratings of its bonds.

“Our subsidiary, Cypark REF Sdn Bhd, as the issuer of sukuk has taken all the necessary actions to address any key areas of review and matters raised by RAM Rating.

“During our engagement with RAM Rating, we have received positive feedback,” Daud says.

He says the group has also organised a bondholder briefing on May 24 to update on its projects’ status and to brief on the resolutions which require the bondholders’ consents.

“We have received indications that the bondholders will continue to provide their support on our proposals subject to Cypark,” he adds.

Yesterday, Cypark announced that RAM Rating has reaffirmed the long-term rating of AA3 for Cypark REF’s RM550mil socially responsible investing sukuk murabahah programme 2019/2041.

It said the assessment has also considered the “extraordinary resolution notice” that was circulated to the sukuk holders on May 23, 2022.

“These changes, including modifications to the transaction terms and payment structure, are not averse to the issue rating.

“The AA3 rating indicates high safety for payment of financial obligations. The rating outlook is maintained at ‘negative’ to reflect RAM Rating’s concerns of extended construction delays for the two floating solar plants at Danau Tok Uban beyond its stressed timeline,” Cypark points out.

Daud says Cypark expects the two floating solar projects under the large-scale solar programme two (LSS2) with 30MW capacity each, as well as its waste-to-energy (WTE) project, to start in September this year.

“The floating solar project has reached the final stage of construction, of which the floating solar system installation and interconnection works are already completed.

“The construction of Tenaga Nasional Bhd’s (TNB) infrastructure facilities is ongoing but facing some delays due to slower approval process by TNB which involves additional requirements,” he says.

On the group’s borrowings, Daud points out that 85% are long-term loans and sukuk, which are mainly for project financing for its current contracts.

“The loans will be pared down by the recurring cash flow streams to be received from TNB for the sale of electricity produced by RE and tipping fees from the government.

“The project inflows are more than sufficient to repay the debts,” he says.

Last year, Cypark completed a private placement of up to 20% of its total issued shares to raise up to RM108mil.

Following the success of the fund raising, Daud expects the group will not require any further funding for its ongoing projects.

“Any future needs to raise funds will likely happen if Cypark secures a sizeable new concession project,” he adds.

In a report, Maybank IB Research say it expects Cypark to see earnings improvement in the second half of this year, driven by its RE portfolio, which is expected to operate a combined solar capacity of 230MW from 70MW presently.

“We also expect it to kickstart its first WTE plant in Ladang Tanah Merah, Negri Sembilan, in July 2022, given that the project is in the last leg of completion,” it says.

However, the research house has revised down its net profit forecast for financial year 2022 (FY22), FY23 and FY24 by 23%, 10% and 10%, respectively, as it anticipates a delay in the commissioning of the WTE project to July 2022 and after adjusting for distribution of the perpetual sukuk.

“We note that the WTE project faced multiple manpower disruptions in January and February due to a surge in Covid cases and restrictive standard operating procedure during its testing and commissioning phase.

“We also now include the distribution of perpetual sukuk into our forecasts,” it says.

A fund manager concurs that some solar players could face margin compression due to the spike in raw material prices and supply chain bottlenecks.

Polysilicon, an essential material in solar panel manufacturing, has been seeing a spike in prices since last year.

Prices of polysilicon have jumped to US$33 (RM144.5) per kg, the highest since 2011, from US$6.19 (RM27.22) in 2020, according to data by German research firm Berntreuter Research.

Prices of other materials in the production of solar photovoltaics such as copper, iron ore and aluminum have also soared, driven by large-scale solar projects globally.

Interestingly, Cypark says the group has procured the solar panels and other equipments for its greenfield projects prior to the price hike.

“Cypark did not secure the LSS4 tenders, which in hindsight is a blessing since the impact of the price hike would likely affect the cost of LSS4 project,” Daud says.

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