• Keep BUY and SOP-derived MYR0.60 TP, 52% upside and c.2% yield. OCK Group remains a good proxy play on the government’s pivot to a dual 5G network model. Management is also looking at refinancing its USD debt which portends significant interest cost savings from FY24F. At <5x EV/EBITDA, stock valuation is undemanding, supported by 15.1% FY23F- 25F core earnings CAGR. Stronger-than-expected earnings and monetisation of its towerco assets are key re-rating catalysts. Our TP incorporates a 2% ESG discount.

• Dual 5G network is positive for the group. We see the group benefitting from new 5G site deployments and co-locations with a second 5G network set to be deployed in 2024. The strengthening narrative on in-building coverage should also contribute positively with OCK having undertaken in- building sub-contract works for Digital Nasional Berhad and mall operators. The group’s outstanding orderbook of >MYR300m which comprised largely of JENDELA-related projects (>MYR200m) represents 1.1x the revenue of its telco network services (TNS) segment in FY22.

• Interest savings from USD debt. The group is looking to refinance its USD debt with a sukuk facility which should lower financing cost going forward and mitigate FX-related risks. Of the MYR574m debt sitting in its books as at 1Q23, c.51% are USD denominated. We estimate interest savings of c.MY14-15m pa based on the current cost of USD debt of >8%. This is significant relative to the group’s financing cost of >MYR30m pa. The new debt facility also offers headroom for solar-typed ventures, which OCK has embarked on, and to meet working capital needs.

• Greening up with CGPP. While the solar segment makes up <5% of group revenue, it offers recurring revenue with EBITDA margin in excess of 80%. The group has submitted a bid for a 30MW solar farm under the Corporate Green Power Programme (CGPP) with a virtual power purchase agreement (VPPA) deal struck with an customer/off-taker. If successful, this would add to the existing solar farms/ventures (>12MW) which are premised on the feed-in-tariff (FiT) and net metering schemes. We see the CGPP as an attractive avenue for corporates to procure renewable energy (RE) credits (which forms part of the VPPA) to offset their carbon footprint.

• Laos towerco update. OCK was the first foreign company to be awarded an independent towerco license by the Laos’ Government with the inking of a JV agreement with the Ministry of Finance (MOF) in Oct 2022. Discussions are on-going with a local telco for the deployment of 5G sites in Vientiane. It would adopt a similar model as with the Myanmar towerco with upfront capex and the sites eventually leased to telcos via long-term lease agreements.

• Key risks are weaker-than-expected earnings, execution, and delays in site deployment.

Source: RHB Research - 18 Jul 2023