Cypark‟s  FY12 net profit of RM25.6m came in within expectations, close to our full year estimates of RM26.9m. Full year revenue of RM195.8m was also close to our  forecast of RM201.6m. Most importantly, income recognition from its renewable energy ventures continues to pick up pace, reinforcing our belief in the prospects of the stock despite the less-than-stellar share price performance to-date since our coverage initiation.  Our Outperform call and a target price of RM2.70 (8x FY13 EPS of 33.7sen) are reaffirmed, as we remain focused on Cypark‟s evolution into a concessionaire-based renewable energy player. We  continue to see  this valuation  as  conservative, as the discounted cash flow value of its renewable energy business alone is already RM2.74. Recent share price weakness presents  a good opportunity for entry into a stock at the cusp of its next (and significant) level of growth.  

Revenue (+21.2% y-o-y): Growth was seen on all fronts, with the environmental engineering (EE) segment  benefitting from new landfill closures, upgrading projects and environmental works secured during the year while the landscaping and infrastructure segment was boosted by a recently-secured contract for works in Putrajaya.  What is most encouraging however  is the increasing contribution from the renewable energy segment through its maiden solar farm in Pajam, a division which is expected to drive growth in a bigger way going forward.

Net Profit (+27.0% y-o-y): The increase in net profit comes as a result of more contracts secured and executed during the year, with the more robust growth vis- à-vis revenue owing to lower administration expenses in the current financial year. Gross margins weakened a tad, but are anticipated to remain in the mid-20s going forward.

Prospects: The government‟s decision to increase the Green Technology Fund Scheme (which enables producers and users of green technology to obtain soft loans, with the government subsidizing 2% of the interest rate and providing  a guarantee of 60% on the amount of financing) by another RM2bn augurs well for the development of the industry and Cypark in particular as it aims to secure additional renewable energy quota once allocation is opened  for application. Additionally, the Group is also poised to benefit from the strong growth in solid waste management services in the country given its expertise, a market of which was valued at RM3.8bn in 2009 and poised to see a 5-year CAGR of 5.3%.

Source: PublicInvest Research - 02 Jan 2013