OCK expects new orders from both Malaysia and regional markets comprising: (i) contracts worth RM200m under the Jendela 2 initiative on fiberisation of 4G sites, mostly in East Malaysia, (ii) preparation works for 70 5G sites in Malaysia, and (iii) an additional 70 towers in Myanmar. No change to our FY23F numbers; thus, TP at RM0.69 and OUTPERFORM rating are maintained.

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

1. OCK expects new orders from both Malaysia and its regional markets comprising: (i) contracts worth RM200m under the Jendela 2 initiative on fiberisation of 4G sites, mostly in East Malaysia, (ii) preparation works for 70 5G sites in Malaysia, and (iii) an additional 70 towers in Myanmar. Recall, in FY22, it met its target of rolling out 100 new towers. Its current order book stands at RM385m, mostly in Malaysia.
2. Apart from building and leasing towers, OCK also focuses on acquiring more towers in Vietnam, in addition to its existing 3.5k towers. It plans to acquire another 1k to 2k towers in FY23. Meanwhile, the rollout of 5G in Vietnam by end-2023 or early-2024 offers OCK the opportunity to replenish its order book.
3. The tenancy ratio with all its 5,300 towers (Malaysia - 600 towers, Myanmar 1,200 towers and Vietnam – 3,500 towers) has improved thanks to the demand for telecommunication and digital technology. Malaysia led the way with 1.4x (from 1.1x) with Vietnam at 1.4x (1.33x previously). Malaysia’s ratio improved due to co-sharing with DNB on existing 4G towers while Vietnam was boosted by added acquisition of higher tenancy ratio towers. The impending rollout of 5G is expected to elevate Vietnam’s tenancy ratio.
4. OCK received its Laotion towerco licence in January 2023 while business operations are expected to commence in 2HCY23 with on a ‘build to suit’ or ‘build to lease’ basis. Laos is looking to roll out 5G in 2HCY23 and OCK will tender projects on a ‘build to suit’ basis. OCK is looking to acquire a telco tower operator which is expected to be on a sale and leaseback basis.
5. Giving the government’s commitment to accelerate 5G rollout, OCK expects the full 5G rollout to last another 3-4 years. This full rollout will require building/upgrading 8k-10k sites of which c. 3.5k sites have been ordered by DNB in the initial phase.

Forecasts. Maintained based on RM140m billings from its order book for FY23.

We also keep our TP of RM0.69 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).

We continue to like OCK for: (i) the tremendous growth opportunities in the telco infrastructure space both at home and abroad especially in the under-served areas, (ii) being well positioned to benefit from the Jendela initiative and 5G rollout domestically and other ASEAN markets. (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, and (iv) its potential expansion to other new markets in the region i.e Indochina, Kalimantan and 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 - 2 Mar 2023