We came away from a recent engagement with OCK feeling reassured of our bumper FY23F earnings backed by potential telco tower construction and fiberisation contracts worth RM250m. Also, we understand that OCK is already involved in the 5G deployment locally via the upgrading of its existing 4G towers to support 5G service as well as the construction of new 5G towers. We maintain our forecasts, TP of RM0.95 and OUTPERFORM call.

We came away from a recent engagement with OCK feeling reassured of its prospects, in particular, a bumper FY23 (our earnings forecast is 31% higher than the consensus estimate excluding ourselves). The key takeaways from the engagement are as follows:

1. OCK reiterated its guidance for two potential contracts worth a total of RM250m comprising a tower construction job in East Malaysia and a publicly funded fiberisation work package. Our forecasts assume 50% contracting revenues and profits from these two contracts to be recognised in FY23 (with the remaining 50% in FY24). We believe our assumption is realistic as we understand that there are strong commitments from the clients to expedite the projects.

2. Coupled with a locked-in order backlog of RM280m comprising various tower construction, tower upgrading and fiberisation works for the public sector (under the Jendela initiative), telco operators and a telco equipment maker, we estimate OCK’s contracting revenue to rise from an estimated RM90m-RM100m in FY21 (relatively low due to the movement restrictions during the pandemic) to RM130m-RM150m in FY22 and >RM150m in FY23. This is more or less in line with our forecasts.

3. We understand that OCK is already involved in the 5G deploymentlocally in two ways. Firstly, it is upgrading 160 of its existing 4G towers to support 5G service (also known as co sharing), which will in turn be leased to Digital Nasional Bhd (DNB). Thus far, it has completed the upgrading works for 30 towers. Secondly, it is involved in certain parts of the work in the construction of 80 new 5G towers of DNB.

We maintain our forecasts and TP of RM0.95 based on a 7x FY23F EV/EBITDA (at a discount to 9x EV/EBITDA we ascribe 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).

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) it being well positioned to benefit from the Jendela initiative and 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) potential business opportunities in the Philippines. 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 - 14 Sept 2022