We reiterate our OUTPERFORM call for OCK given the latest development of its intended foray into the Laotian market. This development underscores the market recognition of OCK’s capabilities in the telco infra space both at home and abroad. No change to our earnings forecast as this development is still in its infancy; thus, TP maintained at RM0.95 based on FY23F EV/EBITDA of 7x. Reiterate OUTPERFORM.

An agreement in Laos. The Edge reported yesterday that OCK has inked a shareholder agreement with the Laotian Ministry of Finance to expand its presence in Laos. Under this agreement, OCK will set up a joint venture company under the name OCK Laos TowerCo Co Ltd, in which OCK will hold a majority stake of 70%, while the remaining 30% stake will be held by the Laos MOF. The setting up of this JV company will subsequently allow OCK to apply for a tower licence to erect and/or own towers in Laos.

Highly positive. We are positive on this move as it clearly underlines OCK’s transition to become a regional player in the South East Asia region taking opportunities in the growing telco infra space in the region. It is timely as the region looks set to recover post pandemic with telco infra one of the catalysts for growth both domestically and regionally. OCK currently has presence in Myanmar, Indonesia and Vietnam with the former paving the way to its presence in the Indo China market. We understand also that OCK intends to tap into the 5G industry in Laos following in the same footsteps in the Vietnamese 5G market.

Forecasts. No change to our earnings 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 that 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 - 6 Oct 2022