INVESTMENT MERIT

- LTAT’s entry could provide various synergistic benefits. The recent entry of LTAT via a 15% stake in OCK could provide several synergistic benefits to the latter, such as: (i) To comply with Bursa Malaysia’s 12.5% Bumiputera shareholding requirement (should the group managed to transfer to the Main Board in the later stage), (ii) further enriching its corporate profile; and (iii) providing better opportunity for OCK to participate in the telecom-related projects under LTAT’s portfolio in the future.

- Aiming to double telecom tower portfolio by endCY14. OCK currently owns c.70 cellular base stations and plans to increase the number to about 150 by year-end and thereafter further double the number to 300 by end-CY14. To achieve the expansion plan, besides constructing more base stations, the group will also acquire standing towers from its peers. We understand that the annual rental income of each base station is c.RM48k-RM84k, depending on the tower structure, with an average ROE of at least 15% p.a.

- Solar venture could provide a steady income. OCK is targeting to complete a 10MW solar farm project worth RM25m on MAHB’s premises in Sepang by end-CY13. Meanwhile, the group has obtained a development order for a 1MW solar farm in Kelantan through its newly acquired wholly-owned subsidiary, Milab Marketing S/B currently in the running for another 2MW project. Management indicated that every 1MW solar farm could provide RM1.4m revenue p.a. with an IRR rate of 18%-20%.

- Regional expansions. OCK is eyeing more oversea projects through its newly set up subsidiaries in both Myanmar and Cambodia given those country's nascent mobile penetration rates, which are still in the developing stage.

- Re-enter at a lower price. OCK’s share price has surged 45.6% since we first recommended it in December last year at RM0.45. It is currently trading at 10.2x FY14 PER, in-line with the average forward PER in the FBM Bursa Malaysia small capital index. We value OCK at RM0.67, based on a targeted FY14 PER of 10.5x. In view that the group’s share price currently offers limited capital upside from here, we suggest investors to take profit now and re-invest in the stock at a lower price.

SWOT ANALYSIS

- Strength: Covers more than 90% of the major technology providers in Malaysia. The largest Tier-1 Market Player.

- Weaknesses: Small market capitalisation.

- Opportunities: Capitalising on the trends in telecommunication infrastructure collaboration.

- Threats: Regulation and political risks.

TECHNICALS

- Resistance: RM0.675 (R1), RM0.730 (R2)

- Support: RM0.640 (S1), RM0.600 (S2)

- Comments: OCK’s share price is struggling to overcome RM0.675 resistance in a downward sloping trend. As the overall uptrend remains intact, trader may capitalise on the short-term correction and re-enter at lower price level @RM0.600 (psychological support) or RM0.585 (Fibonacci support).

BUSINESS OVERVIEW

OCK Group Bhd was was established in 2000 and is principally involved in the provision of telecommunications network services. The group are able to provide turnkey solutions, which include design, build and maintain all means of telecommunications network infrastructures. The group had completed implementation works for major local cellular network operators, including Maxis, Celcom, Digi, U Mobile, P1 and YTL. The top three largest customers for the group are Digi, Ericsson and Huawei that accounted for 16.5%, 13.0% and 9.0% respectively to the group’s total revenue of RM88.3m in FY11.

BUSINESS SEGMENTS

Its principal activities are mainly categorised into four segments, namely

- Telecommunications Network Services Solutions. Contributed more than 70% to the group’s total revenue of RM102.8m in 9M12 to its targeted telecommunications clienteles.

- Trading of Telco And Network Product. Trading telco network equipment and materials e.g. Antennas, Connectors

- Green Energy And Power Solution. Supply of power generation equipment e.g. Gen-sets, transformers.

- M&E Engineering Services. Provision of M&E Engineering Services in collaboration with construction companies on a sub-contract basis. Cater mainly the non-telco sector customers.

Source: Kenanga