OCK has secured three new data centre (DC) backup power solutions (BPS) contracts valued at RM32.5m. While these new jobs are within our expectations, we remain positive on OCK’s continued success in securing DC-related contracts. We estimate that these contracts will contribute 3% to FY24F-25F earnings. BPS jobs currently account for 5% of FY24F-25F topline. We maintain our forecasts, TP of RM0.86 and OUTPERFORM call.

Eyeing connectivity contracts next. Under the scope of the contracts, OCK is tasked to supply, deliver, install, test and commission underground storage tanks and fuel distribution systems. The job scope also includes cabling works for DC back-up power system solutions. These systems aim to provide a critical energy lifeline for back-up generators during unscheduled power disruptions. This is by ensuring a consistent fuel supply which is crucial for DCs to maintain uninterrupted operations amidst power outages. In addition to power solutions contract for DCs, OCK is also tendering for fibre network connectivity projects for DCs.

Keeps replenishing power system contracts. These BPS power contract wins fall within our FY24F order book replenishment assumption of RM49m for power solutions contracts. We understand that OCK completed BPS contracts for two DCs in Penang in FY23, and currently has two ongoing BPS contracts for DCs in Iskandar Johor. We estimate these new contracts will contribute 3% to FY24F- 25F earnings. This is underpinned by our expectation that OCK will commence work in 4QFY24 and complete the projects within 9 months.

Forecasts. Maintained.

Valuations. We also keep our TP of RM0.86 based on unchanged 7x FY25F EV/EBITDA. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 3).

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 solutions and connectivity 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 - 20 Aug 2024