The company started in 2004 as national restoration project service provider. They are providing waste management, treatment and land fill closure. Despite of its short track record, it has already attracted some reputable investors such as Public smallcap fund and OSK-UOB small cap opportunity trust fund and well known individual investor like Chua Ma Yu. For your information, Chua Ma Yu has been known for its shrewdness in business investment.
CIMB Research initiated initial coverage report some time in April 2012. It's long 28 pages report.
What is so sexy about this unheard off company? Short answer: the company is about transforming itself from "garbage" handling business into a pure Renewable Energy(RE) company.
What seems to be exciting is this is a PPA player with very little 8MW capacity and set to jump to 60 MW in 6 - 12 months. Is it solid or just hot air? It is attractive for a number of reasons. All the electricity generated(RE) will be sold to Tenaga. It has secured long term concessions of 21 years for solar PPA and 16 years for Biogas PPA. The fact that PEMANDU is putting its close follow up mean they are serious to make things happen. This is also a first RE public listed company in ASEAN.
With that kind of convictions, CIMB research is tagging RM $ 2.82 as target price.
The key is execution. Its profit has to jump substantially as it is trying replace landfill business with RE businesses. The current business itself is already selling at a reasonable price of 12X PE. With great potential upside of capital gain and dividend in a regulated business, it seems like a good bet to me.
A couple of key points you should be aware.
RE is still expensive especially solar energy despite of huge drop in the solar panel price. If our government continue to subsidize the traditional(fossil) energy costs, it will not be be able to gain market share substantially. This might remain as niche.
CIMB research mentioned other risks such as the policy direction might change or if it runs into problem of getting funding. You might want to notice their current Chairman and a major owner was working in Ministry of Foreign Affair. It has local and foreign connections but it is also a double-edged sword with the current impending GE.
Just something to think about in case you are looking for alternative investment to Tenage, YTL Power, Gas Malaysia, Petronas Gas, etc....
2 comments:
Solar has been a big word in RE industry but while it is true that suppressed hydrocarbon prices are preventing it from flourishing further, there is a limitation to solar tech itself. Read somewhere that the solar film's threshold is surpassed by our local sunlight. Whether this is true in Cypark's case, nothing has been mentioned yet.
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