To kick-start its digital venture, OCK plans to bid for contracts to provide AI solutions. Meanwhile, 2024 is shaping out to be a busy year as 5G deployment kick starts in Laos and Vietnam. Meanwhile, the second 5G network in Malaysia is anticipated to boost OCK’s tower tenancy ratios. We maintain our forecasts, TP of RM0.86 and OUTPERFORM call.

We came away from OCK’s post-results briefing feeling optimistic that the pace of 5G has finally picked up in regional markets. The key takeaways are as follows:

Aims to provide AI solutions for digital contracts. For its new digital solutions unit, OCK has identified the transportation and healthcare industries as its key focus. To kick start this venture, OCK plans to bid for a sizeable contract to provide connectivity solutions for an airport operator. One of the work scopes for this project includes the provision of tools and platforms powered by artificial intelligence (AI) with facial authentication capabilities. On the back of this, OCK has partnered with SenseTime, a leading AI software company based in China.

Laos 5G on steroids. In Laos, OCK revealed that it was awarded 100 sites with specific location coordinates for the deployment of 5G towers for Best Telecom (Best). On the back of this, OCK aims to deliver 50- 60 sites for Best in FY24. We do not anticipate steep capex requirements for 5G roll-out in Laos given the relatively low cost of c. RM100k per tower.

Given that Best is a new 5G player without an existing 4G network, it will build its network from scratch. As such, over the longer term, Best targets an aggressive roll-out of 600 5G sites by FY25. On the back of this, OCK anticipates robust opportunities to provide build-to-suit towers for Best.

Kick-started 5G at Vietnam. To recap, the Vietnamese telco regulator recently awarded two 5G spectrum licenses in March for Viettel and VNPT. Additionally, in 2023, the regulator announced the shutdown of 2G services by end-Sept 2024. Therefore, to cope with this transition, more towers need to be rapidly deployed. Given OCK’s leading market share, this translates to upside for OCK’s tenancy ratios and opportunities to provide BTS towers. To-date, OCK has delivered twenty 5G sites in Vietnam.

5G to boost Malaysia tenancy ratios. For the upcoming second 5G network in Malaysia, OCK believes it will likely be deployed on existing 4G sites during its initial phase. Hence, this may translate to higher tenancy ratios for OCK’s tower network (current overall: 1.35x). Meanwhile, OCK is in discussions with local municipal authorities to secure new sites in urban areas for the first 5G network’s next phase of roll-out. This is in line with the need for densification in urban areas.

Forecasts. Maintained.

Valuations. We also keep our TP of RM0.86 based on 7x FY25F EV/EBITDA This is at a discount to our valuation of 8x 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 4).

Investment case. We continue to like OCK given that: (i) it is well positioned to benefit from JENDELA Phase 2 and 5G roll-out projects in ASEAN, (ii) it has strong earnings visibility as 57% of its topline emanates from recurring income derived mainly from telco tower leasing and network management contracts, and (iii) its earnings may receive a boost from new power management contracts for data centers. Maintain OUTPERFORM.

Risks to our call include: (i) unfavorable regulatory changes, (ii) delayed roll-out of 5G infrastructure, and (iii) country and political risks at frontier markets where OCK has a presence.

Source: Kenanga Research - 31 May 2024