OCK’s 2QFY21 CNP of RM6.2m brought 1HFY21 CNP to RM13.3m, within our expectation at 41% of our full-year forecast. Looking ahead, we believe OCK is poised to benefit from JENDELA’s expanded coverage and the forthcoming 5G rollout. OCK’s strong relationship with Ericsson should also help OCK to secure jobs in rolling out 5G, helping boost its Telecoms Network Services (TNS) segment. All in, its 2QFY21 was as expected, so we maintain our estimates, OP call and DCF-TP of RM0.59, implying EV / FY22 EBITDA of 7x.

1HFY21 within expectations. 2QFY21 CNP of RM6.2m brought 1HFY21 CNP to RM13.3m, within expectations at 41%/43% of our/street’s FY21 estimates. Note that 2H tends to be seasonally stronger, often making up 60% or more of the full-year profit, likely due to greater customer capex in 4Q. No dividends declared, as expected.

YoY, revenue grew 6% lifted by both the telecommunication network services (TNS) and green energy and power solution (RE) segments. The growth in TNS is attributable to OCK securing a new customer in Indonesia over the period. The growth in the green energy segment is thanks to their owning and operating of more solar farms. EBITDA grew in tandem by 5%, and CNP rose by 10%.

QoQ, revenue rose 3%, boosted by a 48% growth in the RE segment, which we believe was driven by higher contributions from their solar farms. EBITDA rose in tandem by 4%. However, a higher tax rate weighed and PAT fell by 3%. Accounting for the non-recurring net gain of RM950k on disposal of a subsidiary company, CNP fell by 13%.

Outlook. Moving forward, we believe OCK will continue to see growth in its TNS and RE segments. Growth in TNS will likely be driven by the rolling out of, and the maintenance of more infrastructures to achieve JENDELA’s aspiration of nationwide coverage. We believe that OCK is also poised to benefit from DNB’s assignment of Ericsson to roll out Malaysia’s 5G network. Having worked with Ericsson in Malaysia for over 15 years, and is thus a familiar business partner, OCK should be able to win jobs from Ericsson to help build the 5G infrastructure. From our checks with management, we understand that OCK has already been engaged by DNB to help survey the sites for 5G, which we believe is a potential signal for 5G rollout jobs to come. Growth in RE will likely by driven by the growth in the number of solar farms it owns and operates, both organically and inorganically.

Post results, we maintain our FY21E and FY22E earnings.

Maintain OUTPERFORM with an unchanged DCF-TP of RM0.59. Our DCF-TP implies an EV/FY22 EBITDA of 7x (close to 3-year mean) and FY22 PER of 17x, slightly below its 3-year mean of 17.6x.

Risks to our call include: (i) slower-than-expected expansion of tower portfolios, (ii) lower-than-expected operating margins.

Source: Kenanga Research - 30 Aug 2021