• Maintain BUY and TP of MYR0.76, 21% upside with c.2% FY24F yield. OCK Group’s results are broadly in line, with the typical revenue seasonality observed. We see earnings growth picking up in the ensuing quarters, supported by higher project billings and an expanding orderbook. Its diversification into the digital business opens up a new revenue stream, albeit with a gestation period. Our TP includes a parity ESG score.

• Routine quarter, profitability in focus. 1Q24 PATAMI was steady at MYR10.2m, as incrementally higher EBITDA margin more than offset the seasonally lower revenue (-3% QoQ). It was up 18% YoY on lower interest costs, with the refinancing of USD debt from the sukuk facility. At 19% of our and consensus forecasts, we deem this as being in line, with stronger quarters in store. We note power solution revenue more than doubled QoQ, likely due to higher billings from a data centre (DC) job which helped offset seasonally weaker telco network services (TNS) revenue (-5% QoQ). Last November, OCK bagged a MYR47m 5-year contract to supply hardware from the Ministry of Education where a c.MYR0.8m contribution was booked in 1Q24.

• Orderbook at >MYR200m. This includes telco network services, DC power solutions and other non-recurring projects and comes on top of the “recurring” orderbook, which is largely made up of mainstream tower leasing, site maintenance and solar revenues, with annuity revenues of MYR295m. The group’s current tenderbook is estimated to be in excess of MYR500m (including digitalisation projects).

• New revenue stream in digital services. A new digital segment (OCK Digital) has been set up, spearheaded by an ICT industry veteran from NEC Malaysia. The focus would be to drive a new revenue stream by leveraging on the group’s strong ownership of infrastructure assets (towers, solar farms) and expertise in connectivity (site and mobile network deployment) to offer integrated digital solutions. Management intends to bid for key public sector digitalisation jobs and garner quick wins within the retail segment, working alongside equipment vendors and solution partners. We note that the group has an exemplary record of executing large government and industry-related projects including the Point-of-Presence (POP), universal service provisioning (USP) and clawback contracts, and JENDELA Phase 1. It had also recently inked a strategic partnership with China’s SenseTime to capitalise on the latter’s expertise in artificial intelligence. We see a gestation period for the digital venture, with nominal contributions likely from 4Q24F.

• Key downside risks are weaker-than-expected earnings/margins, delays in project execution and regulatory setbacks. Our TP has a 0% ESG premium imputed, as OCK’s ESG score of 3 out of 4 is on par with the country median.

Source: RHB Research - 30 May 2024