We initiate a review on OCK Group with a non-rated rating and a target price of RM0.42, based on a targeted FY13 PER of 8.0x in tandem with FTSE Bursa Malaysia small capital index forward PER. OCK Group ('OCK') is principally involved in the provision of telecommunications network services, of which the Malaysia market is the group's principal market. The group has recently been granted a 5-year NFP license from MCMC, which allows it to build and own telecommunications towers. This could further strengthen the group's recurring income source, which currently mainly dependent on maintenance income generated from its telecommunications network services segment. The group's competitive strengths are 1) a full range of turnkey solution provider for telecommunications network services; 2) its established market reputation and 3) its strong relationship with technology providers.

One-stop turnkey solution provider for telecommunications network services. OCK provides a full range of turnkey solutions for telecommunication network services ranging from network planning, design and optimisation to energy management as well as infrastructure management. With these comprehensive end-to-end solutions coupled with its vast expertise in the latest technology knowledge, the group is able to act as a one-stop-centre for telecommunication operators in its efforts to expand, upgrade, consolidate or manage their network infrastructures.

Rising recurring income via owning telecommunications infrastructure. The group's current recurring income is mainly derived from providing maintenance works. With the recent award of its 5-year NFP licence from MCMC, OCK plans to venture into being a telecommunication infrastructure owner by building/buying and managing telecommunication towers. Management believes tower operations could further strengthen its recurring income while at the same time yield it other additional revenue streams such as the sale of replacement equipments and maintenance packages. We understand that OCK has allocated RM9.9m (or 36.7%) from its IPO proceeds for this purpose and is targeting to build and own 40 telecommunication towers in the next one year and subsequently 50 towers for each year thereafter up to the next five years.

Expecting net profit to hit RM10.7m (+25.5% YoY) and RM13.6m (+26.8% YoY) in FY12 and FY13 respectively. We expect the group's FY12-FY13 turnover to be at RM107.3m (+21.5% YoY) and 136.8m (+27.4% YoY) respectively. Our assumptions are based on 1) a 15% p.a. growth in its core businesses and 2) telecommunication tower revenue contributions of RM2.9m in FY12 and RM6.5m in FY13 on the assumption that 40 and 50 towers will be built in these two financial years coupled with a monthly rental fee of RM6k per site. Margin-wise, we expect the group to be able to sustain its gross profit margin at around 26% but it may face some pressure at the PBT level due to escalating depreciation and administrative costs.

Source: Kenanga