Summary

• OCK Group Bhd (OCK) 1QFY22 net profit improved 3.2% YoY to RM7.4m, mainly due to higher contribution from the telecommunication network services and green energy and power solution segment. Revenue for the quarter climbed 12.4% YoY to RM127.4m.

• The reported earnings make up to 21.4% of our net profit forecast of RM34.6m and 21.9% of consensus forecast of RM33.8m. We deem the reported figures to be in line given that 1H results are seasonally weaker as major telco players traditionally ramp up their un-utilised budgeted capex towards the end of the year.

• As at end-1QFY22, OCK owns and manages over 4,800 telco sites (up from 4,600 telco sites as at end-4QFY21) in the ASEAN region that will provide stream of recurring income over the long term. We expect sequential improvement in coming quarters for the year in tandem with OCK expansion plans as the group looks to record more than 5,000 telco sites (3,200 sites in Vietnam, 1,300 sites in Myanmar and 800 sites in Malaysia) by end-2022.

• Moving forward, the progressive 5G services rollout by Digital Nasional Bhd (DNB) is expected to require 3,000-4,000 sites of 5G wholesale network by end-2022. Already, DNB has engaged OCK to conduct site survey for 5G infrastructure works. As of end-1QFY22, OCK will be kept busy with the delivery of outstanding order book of more than RM280.0m, from the JENDELA programme.

• Apart from ramping up the number of towers, OCK also remains committed to drive the tenancy ratio in Vietnam by deploying more aggressive marketing strategy through brownfield expansions. Following a period of instability in 2021 after the military coup has resulted in mobile operators shutting down internet access, economic activities in Myanmar have recovered and set to returning to normalcy.

• On the green energy segment, OCK is operating 11.3MW of solar farms. OCK will be kept busy with the 18 new net energy metering (NEM) rooftop solar project in Terengganu. The aforementioned project will be able to generate 1.8MW capacity per annum for over a 25-year lease term that is expected to be operational by 3Q22.

Valuation & Recommendation

• Given that the reported earnings deemed to be in line with expectations, we made no changes to our earnings forecast. Therefore, we maintained our BUY recommendation on OCK with an unchanged target price of RM0.50.
• 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 7.3%, terminal growth rate of 3.0%). Meanwhile, we ascribed a target PER of 13.0x to both its fully diluted 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 FY21. 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 - 31 May 2022