• Keep BUY, with new SOP-based MYR0.65 TP from MYR0.60, 65% upside and c.2% FY24F yield. 3Q/9M23 results beat our/market expectations. OCK Group is on track to achieve new revenue and earnings milestones, backed by an outstanding orderbook exceeding MYR278m and robust contracting revenue momentum. The spin-off of its regional towerco business remains a key re-rating catalyst. Our TP has incorporated a higher ESG score of 3.0 (from 2.9) given its stronger renewable energy pursuits.

• Ahead of expectations. 9M23 core earnings beat expectations, at 78% of our forecast (consensus: 77%). This was driven by a strong 37% YoY jump in 3Q23 core earnings (+10% QoQ) with 9M23 core earnings at MYR30.2m (+28% YoY). Relative to our numbers, the deviation was largely on account of stronger-than-expected margin and higher contracting revenue. The group is on track to hit new highs in revenue and earnings for the year. Recurring sales (site leasing, managed services/site maintenance and solar ventures) were up 16% in 9M23 (55% of group revenue).

• Contracting revenue up 62% in 9M22 (+22% QoQ) from higher billings related to the JENDELA programme and 5G site deployments. Site leasing revenue expanded 2% sequentially (9M22: +8%) on higher co-locations. Managed services revenue was up 22% YTD, reflecting the good scalingup of site maintenance works in Indonesia (>50k sites) and Malaysia (>11,000 sites). While solar revenue was steady, power solutions revenue rebounded (+93% QoQ) from chunky data centre billings.

• Over MYR278m in outstanding orderbook. This comprised JENDELA and 5G deliverables totaling MYR143m, non-telco projects (MYR134m) which includes the recently clinched Ministry of Education (MOE) contract for the provision of notebooks to schools, valued at MYR48m over five years.

• Other updates. Longer-term earnings upside will accrue from the expansion into the Laos towerco market (the first company to be awarded an independent towerco license) where discussions are ongoing for the deployment of 5G sites in Vientiane. The spin-off of its towerco arm would be key to unlock value given the heightened interests and premium valuation accorded for strategic infrastructure assets.

• Forecast and TP upgraded. We lift FY23F-25F core earnings by 7-12% to reflect stronger billings, the recently secured MOE contract and higher project margin going forward. Key risks are weaker-than-expected margin and/or earnings, project execution and delays in site rollouts. We remove our 2% ESG discount previously, with a new parity score imputed (3.0) to reflect the company’s greater renewable energy pursuits. The group currently owns 29 solar farms with a combined generating capacity of 14MW.

Source: RHB Securities Research - 30 Nov 2023