• 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.

Source: RHB Research - 30 Nov 2022