Cypark Resources Berhad - Imminent Reawakening
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PUBLIC INVESTMENT BANK BERHAD (20027-W)
9th Floor, Bangunan Public Bank
6, Jalan Sultan Sulaiman, 50000 Kuala Lumpur
T 603 2031 3011 | F 603 2272 3704 | Dealing Line 603 2260 6718
Author: | Publish date: Thu, 1 Oct 2020, 2:25 PM
The time is opportune for a re-look into Cypark Resources given the growing benefits from its increasing exposure to the Renewable Energy (RE) segment. Cypark currently owns, operates and manages c.47 MWdc of solar plants, and expects to increase to at least 200 MW within the next two years from its Waste To-Energy (WTE), Biogas, Floating and Ground-Mounted solar installations. Its 20MW WTE and 4MW biogas plant in Ladang Tanah Merah (LTM) is expected to be ready for operation from July 2021, providing the Group with a more sustainable concessionaire-type business in its RE space. Meanwhile we also anticipate 100MW from its LSS3 projects to commission by FY22. Moving forward, we foresee its RE segment contributions more than doubling from FY19, supported by earnings improvements from the WTE, biogas, LSS3 and Net Energy Metering (NEM) businesses. Cypark currently trades at only 5x FY20F price-to-earnings (PE) ratio, compared to an average of 15x for its peers. We upgrade our call on Cypark to Outperform, with a target price of RM1.84, based on SOP valuation.
Early mover in the RE space. Recall that Cypark’s foray into the renewable energy space, particularly solar, dates back to 2011 as one of the pioneers of the Feed-in-Tariff (FiT) mechanism. As such, it enjoys higher rates of between 74sen and 95sen per kWh under the SEDA scheme (vs LSS3 tariff of between 17sen and 23sen/kWh). Cypark will increase its RE project capacity to at least 200 MW within the next two years (currently ~47MW), coming from its Waste To-Energy (WTE), floating solar, ground-mounted solar and biogas plant installations, more than doubling contributions from the RE segment which currently makes up ~19% of Group profit before tax (PBT).
The Waste-to-Energy project is near completion and is currently in the testing stage. Commissioning is targeted for July 2021. Based on the current progress, the SMART WTE project will be contributing positively to the Group from FY21 onwards. The WTE has a capacity to process 600 tonnes of waste per day and is estimated to generate 25MW of electricity. The facility will consist of a waste segregation facility, waste recycling facility, fully anaerobic bioreactor system (FABIOS) plant and WTE power plant. This is expected to generate about RM74m in additional revenue per year, translating to profits of about RM17m annually over the 25-year concession period.
Large Scale Solar Phase 3 (LSS3). Cypark announced that its 70%-owned subsidiary Cypark Suria Merchang Sdn Bhd (CSM) had signed the LSS3 Photovoltaic Power Purchase Agreement (PPA) with Tenaga Nasional (TNB) on 24 June 2020. Cypark is the only local company that won the tender among the five shortlisted bidders, as announced by the Energy Commission at the end of December 2019. Its LSS3 site in Merchang, Terengganu is worth RM460m. The project is a 100 MWac ground-mounted solar plant, located in Merchang, Terengganu with expected commissioning by 31 Dec 2021. This is expected to generate about RM33m in additional revenue per year, translating to annual profits of about RM19m over the 21-year concession period.
Source: PublicInvest Research - 1 Oct 2020