Cypark Resources Bhd
(Oct 27, RM2.18)
Maintain outperform call with a target price of RM 2.56: We visited Cypark Resources Bhd’s integrated waste management facility at Ladang Tanah Merah (LTM), Negeri Sembilan, along with some analysts and fund managers, to gain better insight into the waste management operation and updates on the progress of the waste-to-energy (WTE) project.

There is potential for robust earnings growth in financial year 2018 (FY18), driven by the full scope of renewable energy (RE) revenue from this project. LTM is an integrated waste management facility consisting of the WTE plant, a sanitary landfill site and other infrastructure that was awarded a 25-year concession period.

Under the agreement, the government delivers contracted solid waste from some parts of Negeri Sembilan to Cypark for treatment and disposal at the solid waste modular advanced recovery and treatment WTE system.

The company’s sanitary landfill at LTM is fully operating and currently contributes income in the form of tipping fees paid by the government for every tonne of municipal solid waste received.

Going forward, Cypark would have additional income from the sale of up to 25mw of electricity to the national power grid.

There are two revenue streams generated from this LTM operation: the tipping fees and sale of electricity produced from RE. We estimate that the tipping fee is around RM30 per tonne, accounting for about 4% of FY16 revenue.

The sale of electricity from 20mw biomass and 5mw biogas is expected to generate between RM70 million and RM80 million per year. This would be reflected from FY18 until the concession ends.

Cypark has submitted its bid to the Energy Commission for the development of a large-scale solar photovoltaic plant. We believe Cypark would be a front runner for the above project. — PublicInvest Research, Oct 27