Maintain BUY and SOP-based TP of MYR0.56, 33% upside and c.2% FY23F yield. 9M22 results were in line with revenue and PAT on track to hit record highs in FY22F, thanks to the sharp rebound in contracting revenue. We see a strong 4Q seasonality with the group capitalising on a thriving MYR410m outstanding orderbook. Moving forward, the acceleration of 5G rollout and extension of the JENDELA programme should continue to drive earnings growth. Stock valuation is undemanding, with a forward EV/EBITDA at <5x.
9M22 PAT surged 24% YoY from the strong recovery in telco network services (TNS) revenue and EBIT growth of 20.3%, partially offset by higher financing cost and tax expense. This formed 70% of our forecast (consensus: 69%), with 4Q typically benefitting from strong revenue seasonality.
Solid rebound in contracting revenues. 3Q22 revenue was up 37% YoY, supported by the more than doubling of domestic contracting revenue (+106%/+42% QoQ) with higher billings from JENDELA-related projects. 9M22 contracting revenue was the highest since FY19, and looks on track to hit a new record for the full year backed by MYR410m in outstanding orderbook. While EBITDA grew 25% YoY in 3Q22 (+4.4% QoQ), EBITDA margin fell marginally to 29.2% from 31.8% in 1H22 and 32% in 3Q21 from higher headcount and opex to drive topline. This partly explained the modest 3% QoQ PAT growth. Meanwhile, mechanical & engineering (M&E) revenue posted a five-fold increase QoQ from a maiden cable trenching job for TNB (TNB MK, NEUTRAL, TP: MYR9.00) which management expects to flow through into 4Q22 and FY23F.
Site leasing revenue offers resilient and visible earnings. Site leasing revenue (30% of group revenue) and EBITDA (75% of group revenue) grew 8% in 9M22, mainly driven by its Vietnam (+16%) and Malaysia (+15%) towercos. OCK has met the target of 500 brownfield site acquisitions in Vietnam for FY22F with total sites under ownership at >3,300. Over in Malaysia, OCK has secured 70 new site orders from DNB with 60 4G sites to be collocated for 5G services.
Positive outlook. We expect earnings growth to be driven by regional/local site leasing and domestic contracting revenues. Of the outstanding orderbook, approximately MYR140m relates to the ongoing point-of- presence fiberisation Phase 1 contract (POP1) which saw maiden billings in 3Q22 and the broadband wireless access (BWA) project which has progressed to the operational phase. Following an earlier MoU. OCK expects to set-up its Laos towerco by 1Q23 with a mid-term focus on built- to-suit sites.
Key risks are weaker than expected earnings/margin and delays in project execution. Our TP incorporates a 2% discount based on its 2.90 ESG score.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....