OCK’s 1QFY22 CNP of RM7.4m came within our/market expectation at 23%/28% of full-year estimates. OCK continued to demonstrate growth across its key segments, mainly fueled by JENDELA initiatives and 5G rollout. As results came in-line, we maintain our FY22 estimates. We also maintain our TP of RM0.50 and reiterate our OUTPERFORM call as we see value at its current share price, which is trading at near -2SD of its 3-year mean, which we believe undervalues OCK.

In line. 1QFY22 CNP of RM7.4m came in line accounting for 23%/28% of our/consensus full-year estimates. No dividends declared, as expected.

YoY, 1QFY22 CNP rose 25% as top-line saw a 12% uptick. Topline was driven by all fronts with the exception of M&E which fell 75% to RM0.3m with other segments namely (i) Telecommunications Network Services – TNS (+8%) to RM112m, (ii) Green Energy and Power Solutions (+74% to RM13m). TNS still remains the key contributor at 88% (1Q21: 92%). Overall recurring revenue decreased by 1.5% (66% contributed by recurring revenue vs. 1QFY21: 76%) as Tower leasing and Managed services fell 1.4% and 2.1%, respectively. Malaysia is still the main contributor for top-line (53% vs. 1QFY21: 43%) – due to Jendela Project as regional revenue declined by 10% due to Myanmar depreciating by 20% (vs. Revenue and EBITDA growth of 14% and 18%, respectively). EBITDA margin saw slight erosion (50bps) as EBITDA saw slower growth (+8%) to RM40m on account of 4% Tower EBITDA decline from Myanmar whilst both Vietnam/Malaysia saw double-digit improvement at +15%/+11%.

QoQ, top-line fell 6% attributed to seasonality factor on revenue contribution from TNS as 4Q revenue are normally much higher than 4Q.

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 securing more orders in 2022 as DNB continues its 5G rollout. The RE segment should continue gaining traction from growth of its solar farms portfolio and from resumption in 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 FY22E/FY23E estimates.

Maintained at OUTPERFORM on unchanged TP of RM0.50 as we see value in the stock at its current level. Our DCF-TP implies FY22E EV/EBITDA of 6.8x, at its 3-year mean. Its current share price of RM0.40 implies an FY22E EV/EBITDA of 6x, at -2SD of its 3-year mean, which we think undervalues the company.

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

Source: Kenanga Research - 31 May 2022