• Keep BUY and SOP-based TP of MYR0.65, 20% upside. We expect the double-digit YoY growth in OCK Group’s revenue and core earnings to be sustained in 4Q23, with FY23F marking new records for it. Growth continues to be fuelled by robust site contracting works and steady tower-leasing revenues which are recurring in nature. The stock trades at inexpensive <5x FY24 EV/EBITDA, with the tower business offering latent value alongside the group’s strategic exposure to 5G infrastructure assets. The spin-off of its towerco remains a key catalyst.

• A strong finale; dividend in the cards? OCK is slated to announce its full-year (FY23) results on 27 Feb. We expect a sterling close, with double-digit QoQ and YoY growth in 4Q23 revenue and core PATAMI supported by stronger project revenue recognition and the steady growth of the tower-leasing and site maintenance businesses. Full-year revenue and earnings should hit record highs, with the telco network services (TNS) unit (9M23: 86% of revenue) contributing the bulk of growth. Given the improved showing, we do not rule out a nominal dividend (which has not been factored in by the consensus). OCK last dished out dividends in FY21 totalling MYR0.005 per share.

• Orderbook at MYR250m as at end-Dec 2023. This comprised National Digital Network (JENDELA, c.MYR105m) and other (c. MYR145m) projects. Upside would come from new JENDELA Phase 2 awards, which are yet to be unveiled.

• Financing cost set to decline. The refinancing of USD-denominated debt (3Q23: c MYR260m) from the proceeds of a new sukuk facility (MYR700m) would translate into significant interest savings of MYR14-15m for the group from FY24F onwards. The sukuk also offers financing headroom for new renewable energy/solar-type projects it is pursuing. OCK currently owns 29 solar farms (14MW in combined capacity) via the feed-in-tariff (Fit) and net energy metering (NEM) schemes.

• Towerco value unlocking. We see latent value in the group’s tower-leasing unit (OCK SEA Towers) with towerco EBITDA making up c.70% of group EBITDA. Assuming the towerco business is valued at 7-12x EBITDA (at a discount or in parity with regional peers), the towerco could be valued at MYR600m-MYR1.3bn, implying a valuation uplift of MYR0.20-0.85sen based on our estimates. This compares with OCK’s market capitalisation of sub-MYR600m currently.

• Key downside risks include weaker-than-expected earnings and margins, project execution delays and policy/regulatory setbacks across markets. A 0% ESG premium is built into our TP, as per our internal methodology.

Source: RHB Research - 16 Feb 2024