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Waste Management Stocks on Bursa – A Comparison

Breakdown of Business Operations:

The article below will attempt to compare four waste management companies namely; Tex Cycle, Analabs, BTech and Cypark. I’ve listed down the company’s businesses by segments and further divided the business segments into its major and minor revenue contributors. You could check it out in the table below.

Table 1: Business segment segregated by major and minor contributors to revenue
Table 1: Business segment segregated by major and minor contributors to revenue

Tex Cycle

Tex Cycle is authorized to treat a total number of 31 out of 77 types of scheduled waste within Malaysia. The company provides waste recovery and recycling services to manufacturing industries. These scheduled waste are highly regulated by the Department of Environment (DOE). Apart from scheduled waste collection, the company is also involved in chemical manufacturing and renewable energy generation (biomass & solar energy).

The company’s venture into renewables is still at its infancy. However, if successful, the venture would be the company’s next growth factor.

Analabs

The company’s name suggest that the business is involved in lab analysis or monitoring. However, the main revenue contributors are sales from chemicals and building materials. The second revenue contributor is the company’s contract work (pipe laying and rehabilitation). Moreover, the company seems to suffer from over diversification. Its other businesses include cultivation of prawns, rental of properties and investment holding (quoted and unquoted shares). Sadly, all segments are highly competitive leaving the company with thin margins and weak profitability.

However, Analabs has invested approximately RM 100 million in quoted and unquoted shares. These investments paid a total of RM 5.5 million in dividends (5.5% yield). Although the business is struggling, the company’s investments have been relatively fruitful.

BTech

Unlike Analabs, BTech is more focused on its core business which is involved in wastewater treatment. The company is a full solutions provider for wastewater treatments with engineering, installation, commissioning and sales of formulated chemicals for its customers. A smaller part of its business involves providing services for lab analysis and monitoring services.

Cypark

Among the four, Cypark is likely the largest player. Their business is also involved in recycling of waste materials (similar to Tex Cycle and Analabs), however, Cypark’s scale is significantly larger. Recycled biomass is palletized into fuel sources to generate energy. Separately, the company is aggressively moving into the renewable energy segment. They are the first to build, commission and operate Malaysia’s first Waste to Energy Plant. Moreover, the company boast a decent track record in winning contracts for Malaysia’s Large Scare Solar projects. Compared to Tex Cycle, Cypark is significantly ahead as the company already own’s/operates 367 MW of renewable energy generators while Tex Cycle owns a 4 MW plant.

Financial Highlights

CompanyTex CycleAnalabsBTechCypark
Revenue (mil)RM 24 RM 111 RM 24 RM 304
PAT (mil)RM 3 RM 9 RM 5 RM 71
Margins14%8%20%23%
ROIC3%3%24%3%
Free Cash Flow (mil)RM 2.5 RM 1.0 RM 2.5 RM 33.1
3 Yr Avg Free Cash FLow (mil)RM 6.5 (RM 1.0)RM 3.8 RM 48
Net Asset Value (Discounted)RM 84 milRM 154 milRM 61 milRM 331 mil
PAT CARG
(10 years)
nilnil4%18%
Valuation
(Per Share)
RM 0.42 to RM 0.54 per shareRM 1.28 to RM 1.91 per shareRM 0.37 per shareRM 1.36 to RM 1.42 per sahre
Share Price
(Per Share)
RM 0.405RM 1.15RM 0.48RM 1.11
Discount4%10%(30%)
Premium
18%
Financial highlights between Tex Cycle, Analabs, BTech and Cypark

Most profitable company

A simple comparison shows Cypark has the largest revenue (RM304 million) amongst the four while Tex Cycle and BTech had the smallest revenue at RM 24 million only. However, the company is also the most profitable company amongst its peers with a profit margin of 23%. The closest second would be BTech (profit margin: 20%). Tex Cycle’s profitability is decent at 14% while Analabs’s margins are below average at 8%.

Highest ROIC

In terms of efficient use of assets, BTech has the highest return on invested capital at 24%. However, Cypark and Tex Cycle’s ROIC is below average as their renewable energy projects have yet to generate revenue. Once the projects start commercial operations, their ROIC would improve significantly.

Highest Growth in Profit

Only Cypark experienced a decent growth in profit (10-yr Growth: 18%). It shows that the company has been successful in its ventures. The renewable energy segment will likely propel the company’s profits in the near future. Interestingly, Cypark’s management is targeting to double / triple its profit as the RE projects are commercialized.

Risk and Opportunities

Tex CycleAnalabsBTechCypark
RIsk1. Failure to successfully venture into RE market
2. Schedule waste management business is highly competitive. Recent MCO might further squeeze margins
3. Loss of DOE license to manage scheduled waste.
1. Lacking growth opportunities
2. Questionable management decisions on business ventures
1. No visible growth factors
2. Competitive market could squeeze margins
1. Sudden loss in project tenders
Opportunities1. RE venture turns successful
2. Tightening regulation from DOE
1. Investments in shares could potentially pan out well1. Company wins another Waste to Energy tender
2. Company wins another LSS project tender
Risk & Opportunity

Conclusion

It’s difficult to compare all four companies as equal entities but we could draw some comparisons between Tex Cycle and Cypark. Both businesses are engaged in recycling and recovering waste materials while both companies have decided to venture into the RE segment. However, Cypark’s already shown success in their venture into the RE segment, boasting multiple successful tenders in the LSS projects as well as constructing, commissioning, operating and maintaining Malaysia’s first Waste to Energy plant. Tex Cycle looks to be only starting its RE venture and has a long way to go.

In this respect, I believe Cypark is still the clear winner.

Analabs has shown that their management is not very good at steering the company. I won’t place my bets on such a company. However, the company’s substantial investments are something to consider. The company’s still worth considering if the market capitalization falls to RM 100 million or RM 0.83 per share. You’re basically paying for all the investments which generate a 5.5% return while getting the other operating businesses for free.

BTech is easier to analyze as they have no growth in the foreseeable future. If all else remains unchanged, we could expect the business to be worth around RM 93 million or RM 0.37 per share. However, since there are other alternatives such as Tex Cycle and Cypark. BTech is really not worth the investment.

I’ll be keeping my eye out for Cypark as the winner of the group.

If you like this post, check out me comparison between KLSE”s Consumer Stocks here.

Disclaimer: The article is written purely for the purpose of education and entertainment only. The content of this article is an expression of my opinion and should not be taken as professional advise. If you are seeking for professional advise, please consult your financial advisors. You should do your own research and/or seek expert’s advice when doing your investments. Any decision that you made is your own and the author should not be held accountable

4 Comments

  1. Jane Doe
    Jane Doe 3 July 2021

    Keep an eyes on Cypark financial health too. Our (investor) ultimate goal still profitability, not success of business. Their revenue and project maybe large and looks good, but cash flow not really in good shape.

    Just my 2cents.

    • Focus Investing
      Focus Investing 3 July 2021

      Thanks for the heads up Jane, I’ve been keeping my eye on Cypark. Decided categorize it as too hard. It’s not just cash flow problems, the constant shareholder dilution is a major problem as well.

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