Cypark’s 1Q results miss expectations

by **Cals** Tue 01 Apr 2014, 13:53

Business & Markets 2014

Written by PublicInvest Research

Tuesday, 01 April 2014 09:22

Cypark Resources Bhd
(March 31, RM2.80)
Maintain outperform with target price of RM3.20: Cypark’s results for first quarter ended Jan 31 of financial year 2014 (1QFY14) missed expectations, with revenue of RM51.5 million and net profit of RM7.7 million only making up 20% and 16% of our and consensus full-year estimates respectively. Despite this, we remain unfazed and see healthier renewable energy contributions throughout the year driving income growth and narrowing the difference.
Revenue grew 1% year-on-year (y-o-y). Though renewable energy (+72% y-o-y) and landscaping (+66% y-o-y) contributions were healthy, a 3.6% reduction in its environmental engineering revenue resulted in the tepid overall growth. Future revenue growth will be driven by the plant-up of more renewable energy capacity and construction on its biomass-related project.
Net profit grew 17.2% y-o-y. Growth was more robust as the group’s export capacity of green electricity increased further from 19.0mw to 27.3mw currently (4QFY13: 22.3mw), in addition to a lower effective tax rate from incentives granted to its renewable energy projects despite higher interest costs. We see similarly healthy growth in the coming financial year, also driven by the commissioning of more renewable energy capacity.
With 29.3mw of capacity planted up and only 27.3mw of solar power exported as at 1QFY14, forward earnings will see an uptick, augmented by more capacity plant-ups this year and next as it achieves its collective 40mw quota. 1Malaysia Development Bhd’s (1MDB) recent foray into the solar generation space (50mw solar farm in Kedah), considering its vast other power-related asset holdings, amplifies the case and attractiveness of the renewable energy space, in particular solar.
While Cypark has reportedly been approached to partner it in this project given its know-how, we see the group already thriving on its own regardless.

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The government’s recent move to hike the surcharge on electricity bills for the renewable energy fund from 1.0% to 1.6% effective Jan 1, 2014 augurs well, and also highlights its commitment to the industry’s growth.

We are lowering our estimates for FY14 and FY15 by about 25% however, adjusting for timing differences in the export of green electricity, but in no part due to delays by the group.
We continue to like the value proposition Cypark promises, and reaffirm our “outperform” call with an unchanged target price of RM3.20, translating to a price-earnings multiple of about 11.5 times to a rolled-over FY15 earnings per share of 28.2 sen. — PublicInvest Research, March 31

This article first appeared in The Edge Financial Daily, on April 1, 2014.