OCK is eyeing work packages from Jendela 2, the roll-out of the second 5G network in Malaysia and the 5G roll-out in the Indochina region. Its earnings visibility will be underpinned by RM330m outstanding order book. It is exploring the possibility of listing its telecommunications infrastructure business. We maintain our forecasts, TP of RM0.73 and OUTPERFORM call.

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

1. It is currently eyeing work packages from Jendela 2, the roll-out of the second 5G network in Malaysia and the 5G roll-out in the Indochina region. There has not been any notable progress on the potential RM200m job in East Malaysia it previously mentioned. Overseas, it is closing in on some 5G site works in Vientiane, Laos, of which the specifics, including the number of towers planned and associated costs, are still being worked out.

2. Its outstanding order book stands at RM330m at present comprising telco projects (RM220m) with the balance in green energy initiatives.

3. In terms of telco towers, it now has 600 towers in Malaysia, 4,000+ in Vietnam, and 1,300 in Myanmar. In Vietnam, the company hopes to add 300+ towers by year-end, successfully achieving its target acquisition of 800 – 1,000 towers for FY23. Meanwhile, the tower assets in Malaysia are projected to increase by more than 50 towers by the end of the year partly due to the receipt of local council permits. It hopes to close the deal on the acquisition of 300+ towers in Vietnam by Sept 2023. It needs more time to close the deal as instead of acquiring the telco assets, it is now buying their holding companies.

4. The tenancy ratios for OCK’s tower portfolio are as follows: In Malaysia, the ratio increased from 1.42x to 1.46x. In Vietnam, the ratio was maintained at 1.38x, and in Myanmar, it remained at 1.36x. Expansion in Myanmar is expected to pause for the time being due the on-going economic risks. OCK’s focus now is to improve its currency tenancy ratio in Myanmar with other local telco players.

5. OCK is exploring the possibility of listing its telecommunications infrastructure business. The potential for listing on the Main Board of Malaysia and Singapore has been recognized, and the company is also receptive to considering other stock markets within the region.

6. OCK is issuing a bond with an expected value of RM700m. A portion of this bond will be allocated to redeem its USDdenominated borrowings amounting to RM300m in MYR terms. The remaining funds will be earmarked for capex. The bond will also result in interest savings of approximately 250bps.

Forecasts. Maintained.

We also keep our TP of RM0.73 based on7x 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).

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 roll-out domestically and other ASEAN markets, (iii) its earnings stability and visibility with about 53% 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) 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 roll-out and Jendela, and (iii) risks associated with operating in developing economies.

Source: Kenanga Research - 1 Sept 2023