Monday, July 01, 2013

Cypark- burdened by huge Receivables!


Cypark Resources Bhd ('Cypark') is involved in three main businesses:
- Environmental Engineering (EE)
- Landscaping & Infrastructure (L&I)
- Renewable Energy (RE)

In term of revenue & segmental result, EE contributed 79% while L&I and RE contributed 12% & 9%, respective in 6-month ended 30/4/2013. This compared to the same period last year where EE, L&I and RE contributed 80%,18% & 1% of revenue, respectively while in term of segmental result, the contribution was 82%, 14% & 2%, respectively. 

We can see that RE has grown as a business segment since the start of 2013 due to the increase in the export capacity of green electricity from 8 MW to 19 MW. Before that, Cypark’s generating capacity came from only the 8-MW Integrated Renewable Energy Park in Pajam, N. Sembilan (which joined the TNB grid on March 28th, 2012). Now, another 3 renewable energy parks - located in Bukit Palong, Negri Sembilan; Rimba Terjun, Johor; and Kuala Perlis, Perlis- have also joined the grid. 

Recent Financial Results

For QE30/4/2013, Cypark's net profit increased by 60% q-o-q or 35% y-o-y to RM10.5 million while revenue increased by 16% q-o-q or 36% y-o-y to RM59 million. The increased bottom-line is attributable mainly to increase in renewable energy income (for reason explained above).

 Table: Cypark's last 8 quarterly results

Chart 1: Cypark's last 12 quarterly results

Financial Position

At first glance, Cypark's current ratio is acceptable at 1.5 times as at 30/4/2013 while its gearing ratio appears high at 1 time. However, Cypark's current assets mainly consisted of trade & other receivables totaling RM266 million. This means that Cypark's Receivable Collection period is about 441 days! At such high number, we have to ask how much of these is collectible. If 25% of this amount is not collectable, Cypark would have to write-off RM66.5 million- an amount equivalent to 39% of its Shareholders' Funds.


Cypark (closed at RM1.99 last Friday) is now trading at a PE of 11 times (based on last 4 quarters' EPS of 18 sen). At this multiple, Cypark is deemed reasonably valued.

Technical Outlook

Cypark's share price has been range-bound between RM1.50 & RM2.00 for the past 2 years. Since May this year, it had broken above the RM2.00 mark a few times. However, these breakouts were not convincing and the stock keeps floating at the RM2.00 mark. Failure to stay above the RM2.00 mark would be negative as the stock would drop back into the trading range. Can Cypark recruit sufficient buying support to pull away from the RM2.00 mark? That's the big question.

Chart 2: Cypark's weekly chart as at July 1, 2013_12.30pm (Source: quickcharts)


Despite the good financial performance, Cypark's financial statements raised grave concern about its financial health in the form of extremely high trade receiveables. This is a cause for concern that the receivables may not be substantially collectible. While trading at fairly reasonable PE multiple, Cypark's share price movement shows no clear trend. This may reflect investors' concern about the company's financial position. As such, I would rate Cypark a HOLD.

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Cypark.


JY said...

Its 2012 annual report stated that out of its RM300m receivables, RM168m belongs to unbilled amount on work performed. Should we minus out the unbilled amount when calculate the receivables collection period since it's unbilled?

Akagi Shigeru said...

Alex :
I am a share holder of Cypark. I do agree with your points of view concerning Cypark receivables. That is a major concern of mine. But if you look at the number, the numeber as on 31 Oct 2012 ( RM 336,543,365 ) has been decrease to ( RM 265,581,318 ) as on 30 April 2013. That is a huge improvement. Majority of the receivables are from it's EE segment. I don't think receivables is an issue from it's RE division for the payments shall be from TNB. As for the EE division the clients are the government itself. Hence, the payment are late. I don't think the receivables are noncollectable. Going forward I hope the RE divison will improve it's cash flow.

Alex Lu said...

Hi JY,

That is a good question: Should the unbilled amount due from customers on work performed of RM166 mil. (not RM168 mil) be included in the Trade Receivables? This gives rise to 2 questions:
1. How to value it? Presumably, it is done by a quantity surveyor.
2. If you have valued it, why not bill the customer?

This is a grey area that the auditor must have a hard time accepting.

Alex Lu said...

Hi Akagi Shigeru

Thank you for sharing your info. I read the Annual Report for FY2012 and it did not say who are the customers. If the ultimate customer is the government, then that may change everything.

I am quite confused after I read Note 17 of the annual report for FY2012 which touches on "Trade and other receivables". If a company has so much difficulty explaining an item, then I tend to get worried. I came away from that exercise with one conclusion: I am not comfortable with the slow process of billing and collection.

However, with your new information on the customer, I am a bit reassured.$File/CYPARK-AnnualReport2012.pdf

Stanley said...

Hi Alex, I have been following up with Parkson retail group in HK. It is at all time low from a high of 9. Is it good to average down and hold for long term. ?