RHB Investment Research Reports

OCK Group - Going Great Guns; Keep BUY

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Publish date: Thu, 29 Feb 2024, 11:35 AM
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  • BUY, new SOP-based MYR0.76 TP (from MYR0.65), 30% upside, c.2% yield. We expect another banner year for OCK Group, backed by its MYR250m outstanding orderbook, interest cost savings, and foray into digital solutions. Post results call, we raise FY24-25F core earnings and introduce FY26F numbers. We like OCK for: i) Its strategic exposure to telco infrastructure projects, ii) the steady regional tower leasing business which offers latent value, and iii) earnings upside from the 5G rollout and network upgrades.
  • More jobs underway. OCK expects to secure more jobs under the JENDELA phase 2 awards. Of the MYR250m outstanding orderbook, c.MYR165m are telco-related jobs (including the recent MYR48m awarded by the Ministry of Education for the provision of ICT hardware to schools). We gather that the telco regulator had, in January, awarded new sites under the Universal Service Provisioning (USP) clawback scheme to mobile network operators (MNOs). This should translate into additional site deployment/contracting jobs for OCK.
  • Capitalising on the data centre (DC) boom. OCK has carved a niche in the provision of power back-up jobs with ongoing projects for two major DC customers in the Iskandar region. Management is hopeful of securing more DC jobs and partaking in successive capacity expansion plans of its customers, with DC investments scaling new highs. DC jobs contributed c.MYR19m or about 48% of power solutions revenue in FY23 (parked under the green energy and power solutions segment).
  • Moving into digital solutions. As an extension of its role in connectivity and as an infrastructure enabler, OCK recently diversified into the provision of digital solutions. Management sees good opportunities within the public sector as multiple state agencies have embarked on various digitalisation initiatives. We view the latest foray positively to drive a new revenue stream for the group and to capitalise on structural demand. OCK’s good track record of executing public sector-typed infrastructure projects in the past, including the point of presence (PoP) projects, universal service provisioning projects under Timeline 3, and broadband wireless access (BWA) puts it in good stead to secure additional jobs from the regulator and MNOs.
  • Forecasts, TP upgraded; dividend policy instituted. We lift FY24-25F core earnings by 12-14% to factor in interest cost savings from the refinancing of its USD debt, stronger inorganic growth from the tower leasing business, and improving margins. FY26F is introduced, and our TP is raised to MYR0.76 with valuation rolled forward. We see the newly instituted DPR (20% of PATAMI) resonating well with investors and offering share price support. Risks: Weaker- than-expected earnings and margins, and policy/regulatory upheavals across its regional footprint. Our TP includes a 0% ESG premium/discount.

Source: RHB Research - 29 Feb 2024

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