OCK’s 1QFY23 results met expectations as net profit grew 17% YoY driven by an expanding telco tower portfolio, higher tenancy ratios and contribution from its solar farms. We continue to like OCK as it is a good proxy to the growing demand for telco towers in Malaysia and regionally. While maintaining our forecasts, we raise our TP by 6% to RM0.73 (from RM0.69) and reiterate our OUTPERFORM call.
1QFY23 met expectations at 26% and 25% of our full-year forecast and the full-year consensus estimate, respectively. As expected, no dividend was declared for the quarter.
Results’ highlights. YoY, 1QFY23 revenue jumped 41% driven largely by: (i) the rising numbers of telco towers under its portfolio and management (>5,300 in Malaysia, Vietnam and Myanmar), (ii) higher rental fees due to higher tenancy ratios especially in Malaysia and Vietnam, and (iii) contributions from its solar farms.
However, EBITDA grew at a slower pace of 30% due to higher input costs and operating expenses largely in regional markets. Core net profit improved by only 17% on higher funding costs and effective tax rate.
However, we raise our TP by 6% to RM0.73 (from RM0.69) as we roll over our valuation base year to FY24F (from FY23F) on an unchanged 7x 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).
Outlook. During a recent briefing, OCK guided for 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. We estimate that its current order book stands at RM350m, mostly from Malaysia.
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) being able to improved its tenancy ratio as demand for telecommunication and digital technology improves, (vi) 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) slower-than-expected expansion of tower portfolios, (ii) lower-than-expected operating margins, and (iii) risks associated with operating in developing economies.
Source: Kenanga Research - 31 May 2023
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