Cypark reported a weaker 1QFY22 core net profit of only RM12.1m (-5.1% YoY) despite of revenue increases slightly by 0.9% YoY. Performance for the quarter was still affected by lower work activities and efficiencies due to higher COVID19 infections at project sites which caused disruptions in manpower deployment. Inclement weather also affected site conditions and onsite working hours. Earnings are below our expectations at 10% and 13% of our and consensus of full-year FY22 net profit estimates respectively. We see this as only a temporary setback and expect earnings to pick up from 2HFY22 onwards, driven by increase in work activities from its construction-related projects, as well as commencement of its 20MW waste-to-energy (WTE) plant at Ladang Tanah Merah this year. We also expect the Group to commence its 60MW large-scale solar (LSS 2) plant in Kelantan and 100MW LSS 3 project in Terengganu. That said, our FY22/FY23 earnings projections are adjusted lower by 46.1% and 24.0%, reflecting a weaker 1QFY22 results as well as the delays in its RE project commencements. We maintain our Outperform call on Cypark, with a revised target price of RM1.16 (from RM1.49 previously), on SOP-based valuations.

• Results highlight. Revenue for the quarter fell 11.2% QoQ to RM77.2m mainly due to lower billings recognition from its construction & engineering and WTE segment, dropping 58.8% and 69.0% QoQ respectively. Weaker revenue for these segments are mainly due to lower work activities as a result of a higher COVID-19 infections at project sites which caused disruption of manpower deployment. Inclement weather also affected site conditions and onsite working hours. Nevertheless, the performance was partly offset by higher revenue contribution from the RE segment (+15.9%) to RM66.3m, mainly attributed to better energy generation from most of its solar plants as compared to the previous quarter. That said, earnings were weighed by higher administration cost and distribution to perpetual sukuk holders. Core net profit for the quarter declined 52.9% QoQ to RM12.1m.

• Earnings outlook. We cut FY22/FY23 earnings projections lower by 46.1% and 24.0% respectively, reflecting a weaker 1QFY22 results as well as the delays in its RE project commencements. We foresee earnings picking up in 2HFY22, driven by increase in work activities from its construction-related projects, as well as commencement of its 20MW waste-to-energy (WTE) plant at Ladang Tanah Merah after delays in testing due to lockdowns and travelling restrictions. Earnings are also to be supported by the completion of its 60MW large-scale solar (LSS 2) plant in Kelantan which was previously affected due to floods in the state, as well as its 100MW LSS 3 project in Terengganu.

Source: PublicInvest Research - 1 Apr 2022