So unless Cypark has negotiated better tipping fees and wholesale energy prices (which it may have) my estimate of the revenue is not the RM80M suggested by the company, but RM63M.

Now the effect on earnings is going to be RM63M less RM69.3M less operating costs. Unless there's something seriously wrong with my reasoning, bringing the WTE plant on line is going to have a seriously negative effect on earnings.

And according to Energy Malaysia Volume 13, in 2017, the combined cost of electricity is 26.39 cen per kWh, which puts an annual value on say, 22.5MW of RM0.2639 * 22.5 * 1000 * 24 * 365 = RM52M. And that assumes the plant can produce 22.5MW 24x7, which seems a bit optimistic.

According to https://cdn1.i3investor.com/my/files/st88k/5184_CYPARK/pt/PUBLIC%20BANK/5184_CYPARK_PUBLIC%20BANK_2017-07-06_HOLD_2.62_CYPARK%20-%20Expanding%20RE%20Segment_583217028.pdf “the company targets to receive 1,000 tonnes of solid waste per day. We [Public Investment Bank] estimate the tipping fee is around RM30/tonne”. A tipping fee of MYR30 per tonne at 1,000 tonnes per day would be MYR11M per annum.

star168 If like that, why still going to invest to operating.
10/11/2021 9:17 PM

MathMan It's actually slightly worse than that. Although the company was forecasting revenue from the WTE plant of RM100M in 2015, in it's Unaudited Interim Financial Report for the Third Quarter ended 31 July 2021, the company stated that "Once the plant is commissioned, the integrated WTE plant is expected to contribute up to RM80 million a year in revenue". So now we have RM80M less RM69.3M less operating costs. A positive effect on earnings is starting to look improbable.
11/11/2021 10:07 AM

I originally posted this in November 2021. I believe it is still relevant:

According to the 2020 Annual Report, Note 6(a), in relation to the Ladang Tanah Merah WTE plant, "During the financial year, the borrowing costs capitalised in the intangible asset amounted to RM23,522,000 (2019: RM28,422,000)"

According to the Independent Auditor's Report in the same Annual Report, the carrying value of the WTE intangible asset was RM871M.

When the WTE plant is brought on line, the intangible asset will have to be amortized instead of accumulated. Assuming this is done linearly over 19 years (the 19 years being a complete guess on my part), this will be an outflow of RM871/19 or RM45.8M per annum.

At the same time, the interest, which is presently being capitalised, will have to be expensed, which will be an additional expense of RM23.5M.

If you add the interest to the amortization, when the WTE plant is brought on line there will be additional expenses of RM69.3M.

According to https://themalaysianreserve.com/2017/03/31/cypark-hopes-to-formalise-landfill-concession-by-mid-year/ Cypark was targetting RM100M revenue per year, and there is reason to believe this might include at least a little "blue sky", but even if you accept that number, for sure there are going to be operating costs and those costs may be more than RM100M less RM69.3M.

I would not be surprised if the net effect of bringing the WTE plant on line is not so much a profit as a loss.

According to http://ir.chartnexus.com/cypark/docs/Press%20Releases/20160105_N60_RSV_MN_10_FC_CYPARK~POSITIVE~ON~MORE~RE~BUSINESSES.pdf “the company targets to receive 1,000 tonnes of solid waste per day. We [Public Investment Bank] estimate the tipping fee is around RM30/tonne”. A tipping fee of MYR30 per tonne at 1,000 tonnes per day would be MYR11M per annum.

And according to https://www.st.gov.my/en/contents/publications/energyMalaysia/Energy%20Malaysia%20Volume%2013.pdf , in 2017, the combined cost of electricity is 26.39 cen per kWh, which puts an annual value on say, 22.5MW of RM0.2639 * 22.5 * 1000 * 24 * 365 = RM52M. And that assumes the plant can produce 22.5MW 24x7, which seems a bit optimistic.

So unless Cypark has negotiated better tipping fees and wholesale energy prices (which it may have) my estimate of the revenue is not the RM80M suggested by the company, but RM63M.

Now the effect on earnings is going to be RM63M less RM69.3M less operating costs. Unless there's something seriously wrong with my reasoning, bringing the WTE plant on line is going to have a seriously negative effect on earnings.

It's actually slightly worse than that. Although the company was forecasting revenue from the WTE plant of RM100M in 2015, in it's Unaudited Interim Financial Report for the Third Quarter ended 31 July 2021, the company stated that "Once the plant is commissioned, the integrated WTE plant is expected to contribute up to RM80 million a year in revenue". So now we have RM80M less RM69.3M less operating costs. A positive effect on earnings is starting to look improbable.

According to the 2020 Annual Report, Note 6(a), in relation to the Ladang Tanah Merah WTE plant, "During the financial year, the borrowing costs capitalised in the intangible asset amounted to RM23,522,000 (2019: RM28,422,000)"

According to the Independent Auditor's Report in the same Annual Report, the carrying value of the WTE intangible asset was RM871M.

When the WTE plant is brought on line, the intangible asset will have to be amortized instead of accumulated. Assuming this is done linearly over 19 years (the 19 years being a complete guess on my part), this will be an outflow of RM871/19 or RM45.8M per annum.

At the same time, the interest, which is presently being capitalised, will have to be expensed, which will be an additional expense of RM23.5M.

If you add the interest to the amortization, when the WTE plant is brought on line there will be additional expenses of RM69.3M.

According to http://ir.chartnexus.com/cypark/docs/Press%20Releases/07may2015-%20The%20Malaysian%20Reserve%20-CYPARK%20HOPES%20TO%20FORMALISE%20LANDFILL%20CONCESSION%20BY%20MID%20YEAR.pdf Cypark was targetting RM100M revenue per year, and there is reason to believe this might include at least a little "blue sky", but even if you accept that number, for sure there are going to be operating costs and those costs may be more than RM100M less RM69.3M.

I would not be surprised if the net effect of bringing the WTE plant on line is not so much a profit as a loss.