Summary

• OCK Group Bhd (OCK) 2QFY21 net profit climbed 8.3% YoY to RM6.9m, underpinned by the improved contribution from the telecommunication & network services (TNS), green power & energy solutions and trading segment. Revenue for the quarter added 7.8% YoY to RM116.5m.

• For 6MFY21, cumulative net profit rose 8.6% YoY to RM14.1m. Revenue for the period added 5.8% YoY to RM229.8m. The reported earnings accounts to 39.9% of our net profit forecast of RM35.3m and 46.1% of consensus forecast of RM30.6m. The reported revenue accounted to 45.1% of our estimated revenue of RM509.4m and 44.2% of consensus forecast of RM519.7m for the year. We deem that the reported earnings to be in line, given that OCK’s second half results are seasonally stronger.

• As of 2QFY21, OCK owns and manages over 4,330 telco sites in ASEAN regional with Malaysia (530 sites), Myanmar (1,100 sites) and Vietnam (2,700 sites) that will provide stream of recurring income over the long term. Locally, OCK will be leveraging on the infrastructure developments on roll-out of fifth generation (5G) network by end-2021, beginning with Kuala Lumpur (KL) and Putrajaya as demand for 5G sites are touted to be 3-4x greater than 4G sites.

• On the overseas ventures, OCK remains committed to drive the tenancy ratio in Vietnam to 1.6x (from 1.3x) in 2021 by deploying more aggressive marketing strategy through brownfield expansions. The Vietnam operations have hit a snag, due to the extended lockdowns, while the Myanmar’s expansion plan was impacted by the imposition of martial law. Nevertheless, current situation appears to have found some stability as OCK will now focus on the delivery of orders on hand.

• As of 2QFY21, 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 remains committed in acquisitions of solar farms with decent feed-in tariff rates in Malaysia, participate in large scale tenders and proposed joint ventures with state governments over the foreseeable future.

Valuation & Recommendation

• With the reported earnings deem to be within expectations, we made no changes to our earnings forecast. We maintained our BUY recommendation on OCK with an unchanged target price of 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 a target PER of 13.0x to both its fullydiluted trading and mechanical & electrical engineering services businesses, based on their potential earnings contribution in FY22f.

• 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 - 30 Aug 2021