• Reiterate BUY, with new SOP-based MYR0.78 TP from MYR0.82, 46% upside and c.2% yield. We lower FY24F-26F earnings to factor in slower 1H24 site contracting revenues, partially offset by higher data centre (DC) orderbook replenishment where the group is vying for more jobs and lower financing cost. Being Malaysia’s largest network infrastructure provider and the biggest independent towerco in Vietnam, OCK Group is well poised to benefit from 5G site deployments. The 15% share price pullback in the past month presents a good opportunity to accumulate as valuation remains undemanding.

• Earnings to play catch up in 2H. OCK hosted a post results call last Friday. Management expects the 1H24 revenue/earnings slack to be partly made up for in 2H as the 5G policy uncertainty clears up (outcome of the second 5G network to be known by 4Q24). This should catalyse renewed 5G network spending. In our view, stronger DC billings and Indonesia site maintenance revenue (double- digit growth) should provide some buffer to the softer contracting revenues. DC projects are set to be a new earnings driver with work scope extending beyond power backup to fibre infrastructure connectivity. We learnt that the company is close to clinching a contract for a DC fibre connectivity project valued at c.MYR30m). Site contracting revenue (engineering services) fell 38% sequentially in 2Q24 (1H24: -58%). We lower FY24F-26F earnings by 12.6%, 11.5% and 10.6%, mainly to reflect lower contracting revenue.

• Impairment of receivables. A one-off MYR7.24m impairment was booked in 2Q24 relating to a dispute over service level agreements (SLAs) pertaining to the supply of diesel for gensets in Myanmar. Management has no plans to impair Myanmar assets or exit the market as the business is still generating decent EBITDA/cashflow despite the political issues. Myanmar contributed c.41% of site leasing revenue and c.38% of EBITDA in 2Q24. Its revenue fell 6% and 14% for the quarter on weaker USD and higher opex.

• Outstanding orderbook at c.MYR270m; >MYR920m tenderbook with digital tenderbook of MYR560m. Telco network services (TNS) orderbook of MYR108m comprised mainly of MNO universal service provisioning clawback projects while non-TNS jobs made up the remainder. DC power backup works amounted to MYR42m with the ongoing Ministry of Education (MOE) contract at c.MYR44m. While DC projects have to date been procured from main DC contractors, OCK is not ruling out direct participation in DC tenders with a wider scope of services eyed. Separately, we note the group is awaiting the LOAs for two digital projects valued at MYR10-20m – digital revenue expected to pick up momentum in FY25F. Digital project tenders amount to MYR560m with DC power back-up and DC connectivity tenders at MYR80m and MYR14m. Digital project tenders are in the transportation and healthcare sectors.

• Key risks are weaker-than-expected earnings/margin, project execution delays and regulatory setbacks.

• ESG. Our TP includes a 2% ESG premium.

Source: RHB Research - 2 Sep 2024