OCK’s 1H23 results met expectations. Its 1HFY23 net profit grew 23% YoY driven by an expanding telco tower portfolio, higher tenancy ratios and contributions 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. We maintain our forecasts, TP of RM0.73 and OUTPERFORM call.

Its 1HFY23 net profit met expectations at 56% and 55% of our full-year forecast and the full-year consensus estimate, respectively. As expected, no dividend was declared for the quarter.

Results highlights. YoY, its 1HFY23 revenue jumped 33% 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, its net profit only grew by 23% due to rising input costs and operating expenses largely in regional markets, as well as higher funding cost and tax.

Forecast. Maintained.

We also keep our TP of RM0.73 based on 7x FY24F 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) delivering 30 new sites for DNB (5G and 4G), (ii) works for another 50 5G sites in Malaysia, (iii) an additional 70 towers in Myanmar, and (iv) additional 800 to 1,000 towers in Vietnam. OCK is also expected to deliver 50 5G sites in Laos by end of 2023. We estimate that its current order book stands at RM330m, mostly from Malaysia.

We continue to like OCK given: (i) the tremendous growth opportunities in the telco infrastructure space both at home and abroad especially in the under-served areas, (ii) that it is well-positioned to benefit from the Jendela initiative and 5G rollout domestically and other ASEAN markets, (iii) its tenancy ratio is rising as demand for telecommunication and digital technology improves, (vi) that it has strong 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 (v) that it is actively participating in government large-scale solar projects, and (vi) that it is expanding to 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 its tower portfolios, (ii) lower-than-expected operating margins, and (iii) risks associated with operating in developing economies.

Source: Kenanga Research - 30 Aug 2023