• Keep BUY, SOP TP under review (previously MYR0.65), 10% upside. OCK Group’s FY23 results were in line with ours and consensus expectations, with revenue and earnings hitting new milestones. A 1 sen DPS has been declared. Our forecast and TP are under review pending the results call. We see another record year (FY24F), driven by interest savings from the refinancing of USD debt and the robust contracting orderbook (5G rollout and JENDELA Phase 2). The unlocking of the tower company presents longer-term upside for the stock.

• Record FY, 1 sen DPS declared. 4Q23 PATAMI of MYR10.2m (-1% QoQ, +2% YoY) brought FY23 PATAMI to a record high of MYR39.4m (+17% YoY), at 96% of our forecast and 101% of consensus. A 1 sen DPS has been declared with payout date to be determined later. Given that the group last paid a dividend in FY21 (0.1 sen), the latest distribution should be welcomed by the market.

• Some delays in revenue recognition; EBITDA down 5% QoQ; lumpy power solution revenue. Revenue was sequentially weaker (-13% QoQ) due to delays in site contracting billings (backloaded into 1Q24). With the high base of revenue recognition related to a data centre job in 3Q23, power solutions revenue (parked under green energy and solutions segment) contracted 45% QoQ. Site maintenance revenue grew 17% QoQ (FY23: +25% YoY). Meanwhile, site leasing revenues were up 7% in FY23 (FY22: +12%) on the back of inorganic acquisitions and higher colocations in Vietnam and Malaysia. Overall recurring revenue contribution stood at 57% in FY23 (4Q23: 64%). We expect site contracting revenue momentum to improve on the back of new orders secured from mobile operators for site optimisation, capacity upgrades, and 5G. The impending JENDELA Phase 2 award portends further upside to orderbook, which stood at c.MYR200m (end-Dec 2023), and earnings.

• Financing cost set to decline. The group made a drawdown of the initial tranche (MYR400m) of the MYR700m sukuk facility, which will be utilised to refinance USD debt (4Q23: c.MYR170m). We gather that c.USD20m in USD debt was repaid in Dec 2023. The refinancing would contribute to significant interest savings for the group from FY24F (not baked into our current forecast).

• Key risks are weaker-than-expected earnings/margin, project execution delays, and policy/regulatory setbacks across markets. A 0% ESG premium has been incorporated into our TP based on our in-house methodology.

Source: RHB Research - 28 Feb 2024