What are the Relationship of Intangible Assets, Paper Profits, Cash Flow & Future Profits for Cypark Resources Bhd? How all the above related to each others?

Referring to Page 99 of the 2014 Annual Report of Cypark Resources Berhad:

Included in the revenue of environmental engineering segment is an amount of RM135,640,117 (2013: RM84,689,433) which represents the construction revenue recognised pursuant to IC Interpretation 12 (“IC 12”) - Service Concession Arrangements from construction of a public service infrastructure. Revenue is recognised in accordance with MFRS 111 and based on the percentage of completion method during the construction phase. 


Included in the cost of sales of environmental engineering segment is an amount RM99,460,503 (2012: RM65,422,723) which represents construction costs recognised pursuant to IC Interpretation 12 - Service Concession Arrangements from the construction of a public service infrastructure.

The accounting entries for taking the construction of Ladang Tanah Merah Project (Concession Arrangement) are as follows: 

Dr Intangible Assets 
Cr     Revenue 

Dr Cost of Revenue 
Cr     Bank (Payment of expenses) 

External Revenue Dropped Over Years

That mean, if without the LTM project, the actual external revenue for Environment Engineering would be as follows: 

2014:  Total External = RM151M - RM135M = RM16M 

2013:  Total External = RM183M - RM85M = RM98M

2012:  Total External = RM171M - RM0M = RM171M 

The external revenue from Environment Engineering Segment were infact decreasing over the past 3 years.

Paper Profits & Actual Cash Funding Problems

Correspondingly, the intangible assets was increased in 2 years (85M+135M) with total of RM220M, this was also stated in Note No.5 of the Audited Accounts 2014 (Page 81). 

All in all, the profits of at least RM55M (2013: 19M + 2014: 36M) are paper profits, arising from the recognisation of profits & loss from IC Interpretation 12. 

That explained why the company needed so much cash in 2013 & 2014, with active arrangement of private placements & term loans drawdown.

(Example in 2014: 36M private placement + 26M net term loan drawdown).

The company need to continue pay good dividend to maintain good corporate relationship with stakeholders (especially existing & future investors), even though the company is indeed desperately in need of so much cash to fund the LTM project. 

The cash depleted trend will continue in FY2015 & FY2016. 

Future Profits

The company is expected to be able to turn around in 2017, as its CEO has estimated RM100M cash revenue yearly from the concession by then. 

My conclusion: This stock is long term play.

Declaration: I do not hold any share in this company directly or indirectly at time of writing this article, invest at your own risk.