We came away from OCK’s post-results briefing feeling upbeat on its prospects. We now factor in 50% of its RM280m telco tower erection orders under the Jendela initiative and the 5G rollout to be completed and the profits recognised in FY23. We continue to like OCK for its strong foothold in the growing local and regional telco tower markets. We upgrade our FY23F net profit by 55%, raise our TP by 46% to RM0.95 (from RM0.65) and maintain our OUTPERFORM call.

We came away from OCK’s post-results briefing feeling reassured of its prospects. The key takeaways are as follows:

1. The current telco tower erection orderbook of RM280m has yet to translate to action on the ground as site-permits from local authorities are still pending. To recap, this RM280m contract is from the Jendela initiative and the 5G rollout in Malaysia. We are now factoring 50% of the orders to be completed and the profits recognised in FY23. Based on a conservative PBT margin of 8%, this will boost FY23F earnings by a whopping 55%.

2. OCK are confident of getting more orders under the SWN model – 3,500 towers for Phase 1. It is also tendering for another RM250m worth of jobs under the Jendela initiative.

3. The company has just completed the acquisition of 376 towers in Vietnam, adding to its existing 3,000 tower portfolio in Vietnam. Another 400 to 500 are expected to be acquired by end of the year. To recap, for the Vietnamese market, it adopts an acquisition strategy, taking advantage of the relatively developed market with towers that come with tenants. The tenancy ratio in Vietnam is currently at 1.3x which has the potential to grow further once Vietnam embarks on its 5G rollout.

4. In Myanmar, OCK has an outstanding orderbook of 170 towers (construction and fiberisation). Thus far, close to 30 towers have been completed since the contract was awarded in Dec 2021. Its Myanmar operation is growing well at 13% and 14% on revenue and EBITDA, respectively. In MYR terms, however, they fell 3% and 1%, respectively. OCK adopts a purely tower construction strategy in Myanmar given that the market is relatively undeveloped with limited operating towers, especially in the outskirt areas.

5. For tower acquisitions, the company is guided by a hurdle IRR of 12%. OCK is currently in discussion for tower acquisition in the Philippines. It is also eyeing smaller tower companies of which valuations are less demanding.

Investment case. We continue to like OCK for: (i) the tremendous growth opportunities in the telco infrastructure space in Vietnam and Myanmar which are still relatively under-served especially in the rural areas, (ii) being well positioned to benefit from the Jendela and SWN programme including the 5G rollout in Malaysia, (iii) its earnings stability and visibility with about 63% of its revenue being recurring from telco tower maintenance (55,000 towers of which about 80% are in Indonesia) and telco tower leasing, (iv) it being a proxy play to the relocation of Indonesia’s new capital city to Kalimantan in terms of telco infrastructure, given its dominant market position in Indonesia (45% market share in the telco tower maintenance space currently), and (v) its potential expansion to new markets, particularly the Philippines.

Forecasts. We upgrade our FY23F net profit by 55% as mentioned, raise our TP by 46% to RM0.95 (from RM0.65) based on 7x FY23F EV/EBITDA (at a discount to 9x EV/EBITDA we ascribed to edotco to reflect OCK’s relatively smaller size). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 3). Maintain OUTPERFORM.

Risks to our call include: (i) regulatory risk, (ii) delays in the 5G rollout, and (iii) risks associated with operating in developing economies.

Source: Kenanga Research - 1 Sept 2022