Cypark Resources (Cypark) secured a Letter of Award (LOA) from Selangor’s state-owned company, Selgate Corporation SB for the execution and completion of the remaining works for the construction of private hospital in Rawang. The contract is worth RM108.8m for a duration of 9 months. This is the first contract secured for the construction and engineering (CE) segment after Cypark mutually terminated a roadworks contract in September 2022, just 6 months after it was awarded. To recap, Cypark’s CE segment has not reported any external revenue in 5QFY23 due to completion of existing projects and termination of the said roadworks contract. This contract ends the dry spell for the CE segment and will lift FY24 earnings. All in, we are positive on this contract, though we remain conservative and maintain our forecasts for now, pending the commencing in operations of the long-awaited Large Scale Solar 3 Danau Tok Uban (LSS3 DTU) in May 2023. We retain our Neutral rating and unchanged TP of RM0.63.

• Selgate Rawang Hospital. Based on our checks, Bina Puri Holdings (BPH) was initially appointed as the developer of the project with the initial completion timeline set for 2019. Nevertheless, the project was delayed and only achieved 50% of completion by Jun 2022 due to multiple challenges owing to COVID-19 movement restriction, foreign worker shortage and building materials inflationary pressure. Hence, the state government decided to terminate the contract with BPH and appointed Cypark to continue the construction works within 9 months until January 2024. The hospital is expected to commence operation by mid-2024.

• End of dry spell for CE segment. Cypark reported RM20m-24m external revenue for its CE segment in FY20-21. However, as of YTD FY23, Cypark has only been able to book RM6.6m external revenue and none in 5QFY23 due to completion of existing projects and mutual termination of a roadworks contract. All in, this contract ends the dry spell for the CE Segment, with the entire contract value of RM108.8m expected to be recognized in FY24.

• Remaining conservative on its outlook. Although we are positive on this development, we remain conservative on the Group’s outlook pending the LSS3 DTU commencing operations in May 2023 after several delays due to approval required on interconnection facilities layout. Our earnings estimates are at risk should there be another delay.

Source: PublicInvest Research - 25 Apr 2023