OCK has secured a RM48.7m contract from the Ministry of Education (KPM) for the rental of eco-friendly ICT hardware on a lease-to-use basis. We are mildly positive on the contract value which falls within our expectations and estimate contribution of circa 1%/4% to group earnings in FY23/FY24. We maintain our forecasts, TP of RM0.73 and OUTPERFORM call.

5+ years smallish contract from the government. The ICT equipment supplied by OCK will be used for the teaching and learning needs of KPM’s school computer laboratories under Phase 3 (Zone 9: Sarawak). The contract duration is for a period of 65 months from Oct 2023 to Mar 2029. The job scope includes: (i) supply, installation, testing and hardware commissioning (4 months), (ii) leasing of the laptops (60 months), and (iii) return period (1 month).

Stable earnings that boost ESG track record. This award falls within our expectations of annual revenues totalling RM18-19m for the trading segment in FY23-24F. We estimate contribution of circa 1%/4% to group earnings from this contract in FY23/FY24. We are mildly positive that this contract will generate recurring revenue for the group from a reliable party (i.e. KPM). More importantly, the eco-friendly ICT hardware provided by OCK meets green requirements and benefits the student communities in Sarawak. Hence, this provides a boost to OCK’s ESG credentials.

Forecasts. Maintained.

We also keep our TP of RM0.73 based on 7x FY24F EV/EBITDA. This is at a discount to our valuation of 9x ascribed to Edotcoto, reflecting 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 given that: (i) it is well positioned to benefit from JENDELA and 5G roll-out projects in Malaysia and ASEAN, (ii) it has strong earnings visibility as 63% of its top line emanates from recurring income derived from telco tower maintenance and leasing contracts, and (iii) it may potentially expand to new regional markets such as Indochina, Kalimantan and the Philippines. Maintain OUTPERFORM.

Risks to our call include: (i) unfavorable regulatory changes, (ii) delayed roll-out of 5G infrastructure, and (iii) country risks of emerging markets where OCK operates.

Source: Kenanga Research - 9 Nov 2023