• Maintain BUY and SOP-derived TP of MYR0.56, 33% upside with c.2% yield. OCK Group (OCK) results met expectations with revenue and EBITDA at record highs, thanks to the strong recovery in domestic contracting revenue. We see FY22F core earnings rebounding (+31% YoY) after two years of contraction, supported by 4G site expansion, 5G deployment, and the recurring towerco and maintenance businesses. A 2% ESG discount has been factored into our TP based on our proprietary scoring model.

• Quarterly revenue and EBITDA at the highest level on record, up 22.1% and 17.4% YoY while core earnings jumped 19% YoY (+11.4% QoQ). EBITDA was up 12.4% sequentially, off the weak revenue seasonality in 1Q22. 1H22 EBITDA and core earnings were within quarterly and historical run-rates, at 47% and 46% of our full year forecasts. Recurring revenues (towerco, site maintenance, and solar) made up 64% of 1H22 group revenue, based on our estimates. We note that contracting revenues jumped 25% in 1H22 due to the pick-up in economic activities and policy initiatives to improve 4G coverage (JENDELA). Our forecasts are maintained.

• Tower leasing revenue up for the second quarter in a row (+10.3% QoQ and +10.5% YoY), the strongest growth since the onset of the pandemic and makes up c.32% of overall revenue YTD. This was largely driven by inorganic pursuits in Vietnam and Malaysia and on-going site builds in Myanmar.

• 5G ramp up a sweetener. The group is a key beneficiary of the ongoing 5G network rollout by Digital Nasional Berhad (DNB), the single wholesale network (SWN) access provider. Based on recent media reports, DNB’s 5G coverage has reached 30% of the population and it is on track to hit the c.40% target by end-2022. With DNB looking to raise the population coverage to 80% by 2024, there will be a need for an additional 3,000-4,000 5G sites over the next 12-18 months.

• Business as usual in Myanmar, Vietnam closing in on 3,000 sites. OCK’s site leasing business in Myanmar is self-sustaining and continues to chart steady growth, despite the drawn-out political crisis. We gather there are c.120 outstanding built-to-suit sites for Mytel, its principal customer, which is still expanding 4G coverage aggressively. The earlier refinancing of USD debt and repayment of outstanding USD loan at MM level has mitigated FX risks and the impact of on-going capital restrictions imposed by the Central Bank of Myanmar.

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

Source: RHB Research - 30 Aug 2022