OCK’s FY21 CNP of RM23.2m came within our expectation at 102%, but fell short of street’s estimates at 87%. 4QFY21 DPS of 0.5 sen came as a surprise, with potentially more consistent dividends to come. OCK continued to demonstrate growth across its key segments, mainly fueled by JENDELA initiatives and 5G rollout. As results are in-line, we maintain our FY22 estimates and introduce FY23E CNP of RM35.7m, implying a 13% growth. We now expect FY22E/FY23E DPS of 0.5 sen each. We maintain our TP of RM0.500 but upgrade our call from MARKET PERFORM to OUTPERFORM, as we see value at its current share price, which is trading at near -2SD of its 3-year EV/EBITDA band. Hence, we believe OCK is undervalued.

FY21 met our expectation. 4QFY21 core net profit (CNP) of RM7.1m brought FY21 CNP to RM23.2m, meeting our expectation at 102%, but falling short of street’s at 87% of estimate. 4QFY21 DPS of 0.5 sen came as a surprise. It brought FY21 DPS to 0.5 sen. The last time OCK declared a dividend was a 1 sen DPS in 4QFY17.

YoY. FY21 CNP rose 1% mainly driven by higher revenue (2%) from: (i) Telecommunications Network Services (TNS) (+2%) and (ii) Green Energy and Power Solutions (+25%). Within TNS, its tower leasing sales fell 3% likely driven by 3G shut down in FY21. Its managed services and fiber revenues grew 8% and 2%, respectively, likely driven by JENDELA projects and DNB’s 5G rollout in 4QFY21.

QoQ. 4QFY21 CNP jumped 123% as revenue rose 14%. Net margin improved by 2.6ppt, mainly due to lower ETR (-20.3ppt). We suspect this should normalize in the subsequent quarters.

Outlook. TNS segment should see continued long-term growth from: (i) the need for more 5G sites, and (ii) continued JENDELA efforts to bridge the rural-urban divide. After receiving some 5G tower orders from Ericsson in 4QFY21, management is confident of receiving more orders in 2022 as DNB continues its 5G rollout. The Renewable Energy segment should continue gaining traction from growth of its solar farms portfolio and resumption of construction activity, which could boost demand for OCK’s power solutions. While we gathered that OCK continues to receive demand for 4G sites in rural areas for JENDELA, we estimate that the margins received from those sites are generally lower than those in urban areas, which tend to have higher tenancy ratios.

Post results, we maintain our FY22 estimates, and introduce FY23E CNP of RM35.7m, implying a 13% growth. We now forecast FY22E/FY23E DPS of 0.5 sen (vs. no DPS previously), each, as management has indicated that they intend to consistently pay out dividends moving forward, depending on their profitability and cash flows.

Upgrade to OUTPERFORM (from MP) on unchanged TP of RM0.500, as we see value in the stock at current level. Our DCF-TP implies an FY22 EV/EBITDA of 6.8x, at its 3-year mean. Its current share price of RM0.40 implies an FY22 EV/EBITDA of 6x, at -2SD of its 3-year mean, which we think presents a buying opportunity, particularly fueled by the group’s high recurring revenue streams (61% of group top line). Besides, we think the stock may now appeal to dividend investors, as management strives to pay dividends more consistently moving forward.

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

Source: Kenanga Research - 25 Feb 2022