• Maintain BUY and SOP-derived TP of MYR0.56, 40% upside with c.2% FY22F yield. OCK’s 1Q22 results met expectations. We see the strong contracting orderbook (>MYR280m) driving a rebound in contracting revenue for FY22, with steady site-leasing revenues offering good recurring earnings. Our TP has a 2% ESG discount built in, based on our proprietary methodology. Key share price re-rating catalysts are stronger-than- expected earnings and margins, earnings-accretive M&As, and value unlocking of its towerco assets.

• 1Q22 core earnings grew 3.2% YoY (+8.1% QoQ) as higher EBITDA partly offset the increase in tax expense. This accounts for 22% of our and consensus estimates, and is within historical run-rates. GPM decreased QoQ and YoY (1Q22: 24.4%, 4Q21: 26.7%, 1Q21: 26.5%) on higher manpower costs incurred to meet stronger pipelines, with economic sectors having reopened. We see some margin normalisation in the quarters ahead, as revenue recognition intensifies. A results call is slated for this morning.

• Revenue up 12% YoY. Telco network services revenue narrowed 10% QoQ, off the high base in 4Q21, but marked a respectable 8% YoY increase (88% of overall revenue). Its green energy and power solutions segment saw a 51% QoQ revenue jump, due to chunky power solution sales booked.

• Strong domestic orderbook. OCK’s outstanding contracting orderbook is at a high of >MYR280m. After multi-year declines, we expect its contracting revenue (22% of overall revenue) to rebound in FY22 (1Q22: +33% YoY, FY21: stable) from: i) Aggressive 4G site expansion under JENDELA, ii) the universal service provisioning clawback projects by the telcos, and iii) the lumpy broadband wireless access contract inked, from Numix (MYR115m). The group is well-positioned to capture new 5G sites to be deployed by Digital Nasional, which has a target to cover c.38% of populated areas by year-end. OCK is also tendering for Phase 2 of the MYR4bn fibre point of presence (POP) project (4,000 schools nationwide), which should further strengthen project revenues going forward if secured.

• Towerco earnings. Regional site leasing revenues (including Malaysia) grew 7% QoQ in 1Q22 (-1.1% YoY), with a stronger contribution from Mynmar (due to the stabilisation of the MMK/MYR rate since Dec 2021). We gather that OCK has acquired 237 sites in Vietnam YTD, with a total target of new 800 sites for end-FY22 (FY21: +506). In Myanmar, it continues to execute on the outstanding orders from Mytel for 150 built-to-suit sites. Recurring revenue contribution (including site leasing) made up 66% of 1Q22 revenue (4Q21: 61%).

• Key downside risks are delays in site rollouts (longer lead times for site approvals), weaker-than-expected earnings, and execution risks.

Source: RHB Research - 31 May 2022