Summary

• OCK Group Bhd (OCK) 1QFY23 net profit expanded 16.7% YoY to RM8.6m, on better contribution in the green energy & power solution, trading and M&E engineering  services business segments. Revenue for the quarter rose 41.0% YoY to RM179.7m.

• The reported earnings make up to 23.0% of our net profit forecast of RM37.5m and 21.9% of consensus forecast of RM39.5m. We deem the figures to be in line as 2H  results were seasonally stronger when telco players ramp up their CAPEX spending Recall that 1QFY22 earnings only accounted to 22.0% of total net profit in FY22.

• As at 1QFY23, OCK owns and manages over 5,300 telco sites across Vietnam,  Myanmar, and Malaysia that will provide recurring income stream over the long  term. We remain sanguine over the group’s on-going expansion plans in Vietnam  and Myanmar to subsequently register more than 6,000 telco sites in FY23f. The  group aims to beef up their tower portfolio by additional 1,000 towers in Vietnam as  well as 200 towers each across both Myanmar and Malaysia in 2023.

• Meanwhile, we gather that OCK has received the license by the Laotian government  in January 2023 to supply telecommunication infrastructure, which marks their first  step to penetrate into the Laos market. Back home, OCK now manages more than  11,000 telecommunication sites in Malaysia as well as 49,200 sites in Indonesia,  placing the group’s market share at c.23.0% and c.45.0% in the respective countries.

• Going forward, OCK remains committed in the delivery of orders for the JENDELA  programme and the rollout of the 5G network with the outstanding orderbook of  RM320.0m on hand. With Malaysia transitioning into dual 5G network operations,  we reckon that the move bodes well for OCK in bid to speed up the implementation  of 5G coverages across the nation. As of April 2023, the 5G network has achieved  59.5% of populated areas in the country.

• As of end-1Q23, OCK operates 22 solar farms with a combined capacity of 12.4MW  in the green energy segment. Under the Net Energy Metering (NEM) programme,  OCK will be constructing 188 rooftop solar farms with combined capacity of 3.2MW  for a lease period between 21-25 years and this may strengthen the contribution  from the green energy and power solutions segment.

Valuation & Recommendation

• Given that the reported earnings are deemed 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 RM0.48.

• 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 fullydiluted trading and mechanical & electrical engineering services businesses, based  on their potential earnings contribution in FY23f.

• 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 FY22. 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 2023