• Keep BUY and MYR0.60 TP (SOP), 40% upside. OCK Group’s results were in line with strong double-digit revenue, EBITDA, and core PATAMI expansion. It remains a good proxy play on the 5G network roll-out with greater demand for new builds and co-locations. 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.

• In line. 2Q23 core profit (+28% YoY) hit a quarterly record on double-digit revenue and EBITDA growth. This brought 1H23 core PAT to MYR18.9m (+23% YoY), at 49% of our forecast (consensus: 48%). The telco network services or TNS wing grew 30% in 1H23 on steady growth of the tower leasing segment and robust contracting growth. Power solutions revenue (parked under green energy and power solutions) saw a 58% QoQ decline, likely due to the high base of project recognition in the preceding quarter. Of the outstanding orderbook of >MYR330m, c.MYR210m relates to telcorelated projects (including JENDELA contracts) while the remainder comprises power solution contracts.

• Interest savings from USD debt. The group is looking to refinance its USD debt with a sukuk facility that should lower financing costs and mitigate FXrelated risks going forward. We estimate interest savings of c.MY14-15m pa based on the current cost of USD debt at >8%. This is significant – relative to OCK’s interest costs of more than MYR30m pa. The new debt facility also offers headroom for solar-type ventures and to meet working capital needs.

• Laos towerco. OCK was the first foreign group to be awarded an independent towerco license by the Laotian Government in Oct 2022. Discussions are on-going with a local telco for the deployment of 5G sites in Vientiane. The group is likely to adopt a similar model as with the Myanmar towerco, with upfront capex to build the sites, which would then be leased back to mobile network operators via long-term leasing agreements.

• Forecast maintained. We make no changes to our forecasts, which currently assumes a 15% YoY growth in FY23 core PAT to MYR38.7m. OCK is a prime beneficiary of the 5G roll-out with greater demand for sites and co-locations. There is upside risk to our forecast in the event the group clinches new solar projects and from the refinancing of USD debt, which would lead to lower finance charges going forward, in our view.

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

Source: RHB Securities Research - 30 Aug 2023