Summary

• We attended the post quarter results analyst briefing and came away feeling re assured on OCK Group Bhd (OCK) recovery moving into FY21f. FY20 was largely affected by the slowdown of sites deployment due to the Covid-19 pandemic with domestic mechanical & engineering works were halted for several months. Moving into the FY21f, we note that the re-implementation of Movement Control Order (MCO 2.0) will be less severe given the relaxation of business operations, whilst the deployment of Covid-19 vaccination may provide some relieve, particularly towards end-2021.

• On the local front, we gather that OCK has participated on the Jalinan Digital Negara (JENDELA) that aims to increase 4G coverage in Malaysia from 91.8% to 96.9%. At the same time, OCK is well positioned to support the relatively large scale roll out for 5G, leveraging on their technical competencies with OCK eyeing on a slice from approximately new 1,600 towers valued at RM6.0bn in tender.

• Regionally, we understand that Indonesia’s operations are well supported by more than 48,000 sites (including Malaysia) will continue to provide a stream of recurring income over the long term period. OCK remains committed to increase their tower portfolio, riding on their position as the leader for network managed services in Indonesia and Malaysia.

• Elsewhere, Myanmar’s state of emergency will result in mild hiccup on the rollout of 200-300 towers orderbook in 2021 amid the shortened operating hours. Nevertheless, we note that majority of existing orderbook are located at 2nd-tier cities which has minimal impact from the on-going protests at larger cities. With the current tenancy ratio stagnating at approximately 1.3x in Vietnam, OCK will be deploying more aggressive marketing strategy in FY21f.

• On the green energy & power solutions segment, the management remain committed to expand their recurring business income. We gather that the finalisation of Large Scale Solar 4 (LSS4) project is expected to come into picture in coming few months with OCK tendering for 50MW at Kelantan. Still, we think that the telecommunication network services will continue to anchor growth over the foreseeable future.

Valuation & Recommendation

• With the recovery is largely in place and regional expansion remains on track, we made no changes to our earnings forecast and we maintain our HOLD recommendation on OCK at target price at RM0.53.
   
• 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 - 1 Mar 2021