This article first appeared in The Edge Malaysia Weekly on February 13, 2023 - February 19, 2023

CYPARK Resources Bhd has attracted greater investor interest over the past few weeks, with the renewable energy and solid waste management company’s share price rising more than 200% since Dec 23, 2022, coinciding with the emergence of three substantial shareholders — Jakel Capital Sdn Bhd, Chung Chee Yang and Pertubuhan Keselamatan Sosial (Perkeso).

Cypark’s share price jumped from 38.5 sen on Dec 23, 2022, to RM1.20 last Thursday.

To recap, Jakel subscribed for 176.65 million shares in Cypark in a private placement exercise that raised RM67.1 million on Jan 4, giving the company a 27.33% stake in the group. As a result, Jakel is now the largest shareholder of Cypark.

The placement shares were priced at 38 sen each. The value of Jakel’s investment has tripled in just five weeks. Meanwhile, the fresh capital raised from Jakel will come in handy for Cypark to complete its large-scale solar plant in Danau Tok Uban in Kelantan, which has been beset by delays.

Before Jakel came into the picture, businessman Chung was the single largest shareholder of Cypark when he raised his stake from slightly above 5% in August last year to 10.1% over the past few months. He is now the second-largest shareholder.

On Feb 2, Perkeso crossed the 5% threshold to be a substantial shareholder after buying two million shares in the company, bringing its equity interest to 5.06%. This was disclosed in an amended filing with the stock exchange on Feb 8, which explained that it had included treasury shares in its calculation in an earlier filing on Feb 7. Hence, the amended filing to rectify the calculation.

It is not known when Perkeso started buying into Cypark.

A subsequent filing dated Feb 9 shows Perkeso having a total of 47.58 million shares, or a 6.216% stake in Cypark, after acquiring another 3.56 million shares, 1.64 million shares and 3.89 million shares on Feb 3, 7 and 8 respectively.

When asked about Perkeso’s decision to invest in Cypark, its CEO Datuk Seri Dr Mohammed Azman Aziz Mohammed says the organisation sees “good fundamental value” in the company. “Cypark is among the stocks in Perkeso’s equity portfolio,” he says when contacted by The Edge.

“We see good fundamental value in the company and its focus on renewable energy is in line with Perkeso’s drive towards ESG (environmental, social and governance). Perkeso will always be proactive in scouting for investment opportunities,” he adds.

Based on the Feb 2 and 9 filings, Perkeso acquired the 11.09 million shares at between RM1.01 and RM1.19 each. This has prompted market watchers to ask why the social security organisation acquired the shares at this level when they had been trading at less than 50 sen apiece for most of the past year.

However, it is worth noting that it is unclear what Perkeso’s average purchase price is as it only crossed the 5% threshold to be a substantial shareholder early this month. Still, the higher price range would have raised its average purchase price.

Beset by delays in the commencement of its RE plants, and with its share price hammered by short-sellers in May last year, what do Jakel and Perkeso see in Cypark?

Cypark’s Ladang Tanah Merah waste-to-energy (WTE) plant near Port Dickson, Negeri Sembilan, has just obtained the go-ahead from the Sustainable Energy Development Authority (SEDA), after it received confirmation of the feed-in-tariff commencement date (FiTCD) on Feb 3. The plant uses biomass as feedstock, with an installed capacity of 19.73mw.

According to Cypark, the FiTCD is effective for a period of 16 years from the commencement date of Dec 14, 2022. Pursuant to the FiTCD, Tenaga Nasional Bhd will purchase electricity from the company at the pre-agreed feed-in tariff rate.

“The project is expected to have a material impact on the earnings and net assets of the CRB group for the financial year ending April 30, 2023, and subsequent financial years for the FiTCD period,” says Cypark.

While criticism had been targeted at Cypark for the delay in the completion and commissioning of the WTE plant, its co-founder and CEO Datuk Daud Ahmad says the delay was caused by factors beyond the group’s control, including the prolonged Covid-19 disruptions.

“SEDA has assessed and acknowledged these as valid reasons and granted Cypark a revised commercial operation date (COD). Cypark successfully completed the WTE ahead of the revised COD,” he tells The Edge.

It should be noted that the WTE plant was delayed even before the Covid-19 pandemic. It was initially targeted to be completed in January 2018, and then the deadline was extended to June 2019, as mentioned by the then housing and local government minister Zuraida Kamaruddin.

However, the project could not be completed by the end of 2019. Then, the pandemic hit Malaysia in March 2020.

Nevertheless, the completion of the WTE plant must have been a huge relief for Daud and Cypark. While keeping tabs on the profit contribution from Ladang Tanah Merah, all eyes will now be on another delayed project — the floating solar plant in Tasik Danau Tok Uban (DTU) in Pasir Mas, Kelantan — which was initially targeted for completion in December 2021, then postponed to May 2022 and subsequently to September, and is now slated for May 2023.

These aside, Cypark’s high debt level and cash flow problems have been raised as red flags in the past.

As at Oct 31, 2022, its deposits, cash and bank balances stood at RM187.35 million. It had short-term loans and borrowings of RM311.22 million, while its non-current loans and borrowings were even higher at RM1.18 billion.

As a result of these financial commitments, Cypark incurred interest cost of RM34.78 million in FY2022, making up 35% of its operating cash flow during the year before changes in working capital.

Daud, who has been trimming his stake in Cypark, says the group’s debt situation is to be expected for any company with a business model that has concession assets like the WTE plant, which the group has.

“The project requires major investment, which will be funded through hybrid borrowing, that is 70% to 80% (20% to 30% equity) to fund the construction of concession assets, which will generate healthy recurring revenue and cash flow for many concession years to come. The WTE asset has been proven capable of operating and generating sales of green electricity, meeting the requirements of SEDA and Tenaga,” he says, adding that Cypark is unlike other RE companies that do not invest in major concession assets but just act as contractors.

It is worth noting that Daud, who holds a 5.2% stake, last month accepted the Employees’ Share Option Scheme that grants him the option to buy 40 million shares, or equivalent to 5.22% of the current issued share capital of 765.5 million shares.

Perkeso has a fund size of about RM31 billion and it has invested in several asset classes including equity, based on its strategic asset allocation, says its CEO Azman. Its 2019 annual report shows that the organisation had RM28.65 billion in assets under management at the time.

Perkeso has yet to upload its 2021 or 2022 annual report on its website.

In 2019, the social security organisation’s gross investment income decreased by RM290.52 million, or 18.5%, to RM1.28 billion, from RM1.57 billion in 2018, owing to lower gains from divestment and other investment income.

When pressed further by The Edge on whether he thinks the investment in Cypark is risky, considering its track record of facing multiple delays in completing its projects, Azman declined to comment.

As for Daud, he sees the commercial start of the WTE on Dec 14, 2022, as the draw for Jakel and Perkeso to come in as substantial shareholders. He says both responded positively to the announcement of the COD of the WTE.

The WTE plant is the first of its kind in the country.

“The SMART WTE will provide a stable recurring revenue stream for Cypark for many years to come,” says Daud.

On Jan 4, Cypark announced to Bursa Malaysia that it had successfully completed its placement of 176.65 million new shares for RM67.1 million to Jakel. With the placement, Jakel emerged as the largest shareholder of Cypark with a 27.33% stake.

In the statement announcing the successful placement, Cypark said it views Jakel as a new strategic bumiputera shareholder that will help preserve its status as a bumiputera-controlled public-listed company and that Jakel will be a long-term investor of Cypark. “With the support of strong bumiputera investors like Jakel Capital, Cypark expects to further optimise our strategic market position, enhance our shareholders base, and expand and strengthen our business presence locally and regionally,” it added.

In a separate statement, Jakel said the investment is to strategically rebalance Jakel Group’s investment exposure with the incorporation of ESG investing into its portfolio.

“For Jakel Group to remain competitive in the future, we are obliged to embrace and prioritise ESG principles in everything we do, towards providing greener practices, products and services. Through Cypark, we now have a platform and a role to play in advancing Malaysia’s climate and sustainability agenda to achieve environmental sustainability by 2030,” said Jakel CEO Muhammad Ashraf.

Ashraf added that with Cypark as an associate company of Jakel, the group’s investment arm is committed to investing in the company for the long haul and remains bullish on the growth of the clean energy industry.

Jakel noted that the acquisition of shares via the private placement provides Cypark with an infusion of capital, with RM50 million earmarked for the DTU project. It added that the remaining proceeds will be used as working capital for the SMART WTE plant.

When asked whether Cypark will continue to raise funds from the capital market to invest in more RE plants, including WTE and large-scale solar plants, Daud says the group has a competitive advantage to repeat and grow its business locally and regionally. “In line with our concession assets business model, if an attractive investment opportunity knocks on our door, additional equity investment may be one of the options we need to study carefully,” he adds.

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