Cypark released a statement overnight clarifying that the on-going fire at the Pajam landfill, as highlighted in press reports, only involves the active dumping area which has not been handed to it for scientific closure, and is currently being operated by a landfill operator appointed directly by the local council. To re-cap, Pajam is where Cypark has already planted up 8MW of solar capacity, with another 5MW currently under construction.

Earnings-wise, we are lowering FY13 and FY14 estimates by 29.5% and 24.9% however, primarily to account for the delay in construction of its biomass plant and related contributions in Ladang Tanah Merah, which we had previously accounted for but had been delayed owing to the recently-concluded General Elections. The Group is slated to release its 2QFY13 results later today, which will likely show a healthy growth in quarterly earnings. The inherent value of the company remains intact despite this downward earnings revision, as is our Outperform call. Our target price remains unchanged at RM2.70, based on a slightly higher 9x multiple to a rolled-over FY14 EPS of 30.1sen. We continue to see this valuation as conservative, as the discounted cash flow value of its renewable energy business alone is already RM2.74, and which will only contribute an eventual 70% to Group bottom-line.

Progress updates: Solar - 19MW of solar capacity has already been planted-up in Pajam and Bukit Palong in Negeri Sembilan as well as sites in Johor and Perlis, all of which will be accorded feed-in-tariff rates of 95sen/KWh. Full contribution will only be recognized in FY14 however. Under construction currently are the 5MW extension in Pajam and a 5MW solar park in Kuala Sawah, both in Negeri Sembilan and slated for completion in Oct this year. Another 4MW will be started up in 2HCY13 in Pahang, Negeri Sembilan and Perlis. Construction of its remaining 7MW capacity will commence in 2014, in Malacca and Negeri Sembilan. Biogas – 1.5MW has already been installed, but has not obtained the feed-in-tariff commencement date as yet. Another 1.5MW will be completed by 2HCY13, with its remaining 4MW to be done by next year. Biomass – Currently awaiting Cabinet approval, supposedly by this month, with the concession expected to be signed in July. The Group will earn from construction activity, tipping fees, sale of recyclables and sale of energy. Full contribution will only be seen in FY15 after the 15MW thermal plant is built.

Source: PublicInvest Research - 28 Jun 2013