Summary

• OCK Group Bhd (OCK) 4QFY20 net profit fell 15.5% YoY to RM6.1m, dragged down by the weaker contribution from the mechanical & electrical engineering services business segment that suffered a loss on site closures from the MCO and CMCO. Revenue for the quarter, however, gained 12.4% YoY to RM138.7m. For FY20, cumulative net profit declined 8.7% YoY to RM25.6m. Revenue for the year decreased marginally by 0.1% YoY to RM473.1m.

• The reported earnings came in line with our expectations, accounting to 95.0% of our net profit forecast of RM27.0m and 93.8% of consensus forecast of RM27.3m. The reported revenue accounted to 94.0% of our estimated revenue of RM503.3m and 99.6% of consensus forecast of RM475.0m for the year.

• As of FY20, OCK owns and manages over 4200 telco sites in Malaysia (500 sites), Myanmar (1,000 sites) and Vietnam (2,700 sites) that will provide stream of recurring income over the long term. We note OCK will actively participate on the National Digital Network Initiative (Jendela) plan with RM4.0bn infrastructure works for more than 1,700 sites to be tendered by 1Q2021, whilst capitalising on the 5G transition that may see demand for telecommunication sites quadruple against the number of 4G sites.

• On the overseas ventures, OCK aims to drive the tenancy ratio in Vietnam to 1.6x (from 1.3x) in 2021 by deploying more aggressive marketing strategy. On the downside, we expect Myanmar’s contribution to be choppy, owing to the imposition of martial law in parts of Yangon, Mandalay and other townships with political instability on the rise. Elsewhere, OCK is eyeing on the expansion into Philippines after telecommunication companies have submitted their rollout plans to improve their internet speeds to the National Telecommunications Commission (NTC).

• As of FY20, OCK operates 17 solar farms with a combined capacity of 11.3MW in West Malaysia. In bid to reduce the reliance on TNS segment that contributed 90.6% of total revenue in FY20, OCK aims to participate in bid for the large-scale solar 4 (LSS4) that entails 1GW of national solar energy tender.

Valuation & Recommendation

• We trimmed our earnings forecast by 7.6% and 5.1% to RM30.4m and RM34.5m for FY21f and FY22f as the political instability in Myanmar will potentially result in the delay of 400 telecommunication sites rollout progress. Following the earnings revision, we downgrade OCK to HOLD (from BUY), with a lower target price at RM0.53 (from RM0.56).

• We adopt a sum-of-parts (SOP) approach as we valued its telecommunication network services and green energy & power solutions business segments on a discounted cash flow approach (key assumptions include a WACC of 9.5%, terminal growth rate of 1.5%). Meanwhile, we ascribed an unchanged target PER of 13.0x to both its fully-diluted trading and mechanical & electrical engineering services businesses, based on their potential earnings contribution in FY21f.

• Risks to our recommendation include rising raw material costs. OCK’s business is heavily dependent on steel that accounts for slightly below 40.0% of the group’s costs of construction in FY20. Any project delay could also impact its income growth and cash flow as the group is operating in a capital intensive industry.

Source: Mplus Research - 26 Feb 2021