• BUY, SOP-based TP of MYR0.56, 37% upside with c.2% FY22F yield. OCK should book robust 2Q22 earnings following the strong turnaround in contracting revenues. After two years, FY22F core earnings are set to rebound (31% YoY), supported by 4G site expansion, 5G deployment and the recurring regional site-leasing and maintenance businesses. Our TP factors in a 2% ESG discount, based on our proprietary scoring model.

• Contracting activities making a strong comeback. OCK’s 2Q22/1H22 results are slated to be announced on 29 Aug. We expect significantly improved numbers, with contracting works having recovered strongly since the full reopening of the economy. 2Q22 revenue is projected to grow by 15-20% QoQ (+25-30% YoY) to a quarterly high, led by the telecommunications network services (TNS) segment (>80% of revenue). With lower interest expense from refinancing the USD debt and a stable EBITDA margin, core earnings should grow by 8-10% QoQ. We expect a turnaround in group contracting revenue in FY22 (1Q22: +33% YoY) after multi-year declines, driven by the 4G site expansion under the JENDELA programme and the cellcos’ universal service provisioning (USP) clawback projects. TNS revenue grew 7.8% YoY in 1Q22 (-9.6% QoQ) due to seasonal factors, backed by its steady regional tower leasing business (-1% YoY) and robust contracting revenue (+32.6% YoY).

• 5G ramp-up a plus. OCK is a key beneficiary of the country’s 5G network rollout which is being undertaken by Digital Nasional (DNB), the single wholesale network (SWN) access provider. DNB has an aggressive target to cover c.40% of the population by end-2022 and some 80% by end-2024, which translates to 3,000-4,000 new 5G sites over the next two years.

• Business as usual in Myanmar, almost 3,000 sites in Vietnam. Despite the drawn-out political crisis, OCK’s Myanmar site-leasing business is self- sustaining and still charts steady growth. There are c.120 outstanding built- to-suit sites for Mytel, which is still expanding 4G coverage rapidly, while its Vietnam towerco is closing in on 3,000 sites. The refinancing of USD debt (since transferred to the group) and repayment of outstanding debt at the Myanmar level via a syndicated USD30.8m loan in April mitigated FX risks and the impact of on-going restrictions imposed by the Central Bank of Myanmar for the repayment of USD debt. We gather that OCK Yangon is exempted from the ruling to convert MMK to USD, being a 100% foreign- owned entity, while the authorities are amenable to the purchase of USD to meet trade payables, with applications approved on a case-by-case basis.

• Key downside risks are weaker-than-expected earnings, delays in project execution (site approval and permitting issues) and regulatory setbacks. Stronger-than-expected earnings, earnings-accretive M&As and the unlocking of value of its tower assets are key share price re-rating catalysts.

Source: RHB Research - 24 Aug 2022