• Keep BUY and SOP-based TP of MYR0.82, 44% upside with c.2% FY24F yield. OCK Group’s results were light against our/consensus estimates as its site contracting jobs are at the tail-end. We see revenue momentum picking up in 2H, supported by an outstanding orderbook of over MYR270m which includes recent wins in the data centre (DC) space. Investors should accumulate on price weakness.

• Falling short. 2Q24 core PATAMI of MYR7.6m (-26% YoY, -25.5% QoQ) brought 1H24 core PATAMI to MYR17.8m (-6% YoY), at 31% and 33% of our and consensus full-year forecasts. A results call is slated for later today. Our forecasts are pending review.

• Telco network services (TNS) weakness. TNS revenue growth decelerated further, as the bulk of site contracting/engineering works are at the tail-end stages or already completed. With the outcome of the second 5G network tender expected by 4Q24, its contracting orderbook should see progressive improvements in the next quarters. Site leasing revenues were steady (31% of revenue) with routine performance at its domestic and regional towercos (Myanmar and Vietnam). Power solutions revenue (parked under green energy and power solutions segment) more than doubled QoQ while digital revenues tripled.

• Outstanding orderbook at c.MYR270m. We estimate its outstanding TNS orderbook at c. MYR105m, with the remainder being non-TNS projects. The latter includes three DC power supppy jobs secured recently, that are valued at MYR32.5m. We are positive on the MYR400-500m worth of projects tendered under the newly set-up digital division, which should drive a new longer-term revenue stream. OCK’s good execution track record across numerous public sector-type infrastructure jobs in the past (JENDELA, Point- of-Presence, USP clawback projects) puts it in good stead to secure digital projects from the government, in our view.

• Vying for more DC jobs. DC revenues made up c.6% of group revenue YTD and should widen further from larger billings in 2H. Aside from ancillary power solution back-up jobs, OCK is also tendering for fibre connectivity projects.

• ESG updates. The group disclosed its Scope 1 and 2 emissions for the first time in 2023. Initiatives to reduce carbon footprint include the use of hybrid power solutions to power mobile sites in frontier markets, effectively reducing the reliance on gensets. OCK currently owns 29 solar farms nationwide with a combined capacity of 14MW. It is scouring for more solar jobs at present.

• Key downside risks include weaker than expected earnings and margins, delays in project execution, and regulatory setbacks.

Source: RHB Research - 30 Aug 2024