WHAT MOST ANALYSTS SAID?

I can't remember exactly how many analysts wrote about OCK, I think 5 or 6.  RHB, Inter-Pac, Kenanga, Malacca Securities, TA (during listing), UOB Kay Hian and CLSA (not rated)

Most of the analysts used DCF methodology for the calculation of the fair value of OCK (before the Vietnam deal), after considering the Myanmar deal, the estimated TP is about RM1.00.

UOB KAY HIAN

What caught my eye in July 2016, UOB estimated fair value of RM1.30 per share in a blue-sky scenerio where OCK expands its sites in Myanmar to 3,000 by 2020 and 4,000 by 2024 with a tenancy ratio of 1.15 times.  I believe, most analysts who are conservative uses tenancy ratio of 1.0 time.

CLSA

Lately, in OCK's website, CLSA believe, with the latest government restriction of building towers within the 200m radius and the time lime set by Myanmar for 90% coverage by 2020, CLSA said the management expects tenancy ratio can go as high as 1.8 times.

OCK 

Yesterday, OCK make another acquisition (60% of SEALTH)  of 1,938 towers in Vietnam with lease attached of between 5-10 years to expiry.  The existing tenancy ratio is about 1.15 times in Vietnam.  OCK believe that they can improve the tenancy ratio to about 1.4 and 1.5 times in the next few years.

SO, WHAT IS THE BIG DEAL?

If we look at UOB Kay Hian blue-sky scenerio (TP of RM1.30) with 1.15 times tenancy ratio, it is likely achievable based on CLSA (Myanmar's expected tenancy ratio of 1.8x) and OCK (Vietnam expected tenancy ratio of 1.4-1.5x) in the next few years.

If we revisit UOB Kay Hian's blue-sky scenerio with higher tenancy ratio, say about 1.6 times vs the existing 1.15 times, I wonder what will the analyst get?

Wouldn't UOB's blue-sky scenerio become nomal sky scenerio?

RISKS

Of course, it become a standard disclosure for all analysts today to include the risk involved, such as execution risk (which is real), funding risk (also real) and over run of costing (also critical).

As far as Myanmar, based on few analysts visit to Myanmar, OCK has rolled out 50 towers by end of June.  Latest figure by end of July, should be about 150 or more.  Funding of USD40.2m was obtained in July.  Costing is under control, as per management.  Hence, if we follow closely, all the risk above is mitigated.  

CLSA said, it should be rerated if all the risks mentioned is mitigated.

VETERAN SAID

Buy on rumours and sell on news. Well, the Vietnam deal is announced. Time to sell? Price did not move much after the announcement.  Although I am not familiar with technical analysis, I did notice OCK is unable to break the 84.5 sen jinx.  I think it happened 4-5 times since the last couple of months.  Not sure what that means.

LONG TERM OUTLOOK?

It may be more accurate to value OCK using the DCF methodology since the tower assets has locked in the contracts, and tenancy rate.  The good part is that, POTENTIAL upside is there on the tenancy ratio in Myanmar.  Give this stock 3-4 years, I believe it can exceed the blue-sky scenerio by UOB Kay Hian's analyst target price of RM1.30.

So far, the execution of Myanmar deal is been smooth, lets hope there is no hiccup on Vietnam's deal (EV/EBITDA of 8x). I personally prefer the warrant, it is an OPTION, or RIGHTS to be a shareholder in 4.5 years time.  At the moment the warrant price (25.5sen) is about a third of the mother.

DISCLAIMER

Not a buy, sell or hold call. It is just an opinion.  (Let's say you sell your car for RM100k today, and used Myvi RM40k for next 4 years, I wonder if you can upgrade it to a better one at RM200k by 2020 or use the money to finance your kids education).

ADDED ON (18 AUG 2016)

Before March 2014       -          share price hovering around 40-50 sen

March 2014                  -           price climbed from 40 sen to 80 sen

April 2014 to Aug 2016 -           price hover between 70 sen and 83 sen

What happen to OCK since March 2014 till Aug 2016

Built                         -       133 towers in Malaysia (amount and time line not confirmed)

PP  in 2014               -     RM40m (guesstimate)

Purchase PT Indo    -      RM21m (maintenance of towers)

Built                         -       RM35-40m or 5.0 MW of solar power

Rights issue            -        RM132m

Contract secured    -       build and lease back to Telenor     USD70m (70:30)

PP in 2016             -        RM64m

Loan obtained for Telenor  -   USD40m

Purchase Tower in Vietnam  -  USD50m   (60:40)

Loan for Vietnam (WIP)       - USD30m

SUMMARY - SINCE MARCH 2014 TO AUGUST 2016 (EV @ DEC 2015 = RM450m)

EQUITY RAISED :   RM234M (Including PP)

DEBT RAISED    :    USD70M (Myanmar and assumed loan for Vietnam deal obtained) or RM280M

DEBT RAISED    :   RM80M for local projects on towers and solar panels

TOTAL RAISED  :    RM234M + RM80M + RM280M = RM594M  (for projects of EV/EBITDA of 7 to 8 times)

ACQUISITIONS & PROJECTS :     Indo maintenace, solar panel, Myanmar towers, Vietnam towers, Cambodia fiber contract, build tower in Malaysia

Conclusion:  For the last 2 years 5 months to August 2016, approximately RM600m (rights issue, private placements, loans raised) is invested into acquisitions and greenfield projects with EV/EBITDA of 6-8x, with long term contracts >10 years, with growth potential, and also higher profit margin, and the value did not move a bit, perhaps, it may have move up too fast in 2014 March.

More importantly, if we look at the what assets OCK has today and completing soon and EBITDA generated:

Asset 1     -         owned 5.0 MW solar panel with 21 years FIT concession 

Asset 2     -          owned 133 towers in Malaysia

Asset 3     -          bought a maintenance of tower company in Indo, growing yearly in double digits

Asset 4    -           secured Myanmar build and leaseback with 12+5+5+5 years USD70m and further USD80m (total 3000 towers) - with tenancy ratio up to 1.8x

Asset 5   -           bought brownfield towers in Vietnam (1938 towers) with EV/EBITDA of 8x, OCK will try to improve cost efficiency and tenancy ratio from 1.27x to 1.6x

Contracts  -         Maintenance contracts is Indonesia, LTE deployment in Malaysia, USP building towers in rural areas contract, etc.

In July 2016, consensus from analsyts (4-5), TP is about RM1.00 based on DCF method.  UOB Kay Hian, gives a value of RM1.30 per share based on sunny sky scenerio i.e. tenancy ratio of 1.15x in Myanmar (where is reality it can goes up to 1.8x) and have not include Vietnam deal. In 2-3 years time, RM1.30-RM1.60 per share is attainabe when they can see the tenancy growth.  The price is now at 81 sen and warrant is 24 sen - with good and certain potential upside.  

ADDED on 24 August 2015 (Behind the envelop calculation)

OCK W - Trade at 22sen @ 24/8/16.  Market Cap = 633M. Last 2 years, company raised about RM700m from Shareholders, Placees, Bankers, Indochina Partners, Private Equities for the two major projects.  One is build-and-lease back with Telenor in Myanmar for a project about RM300m (Dec 2015) and also bought a brownfield telco towers in Vietnam for about RM200m (expected to complete by Dec 16).

What is expected from Myanmar + Vietnam Projects for investment of about RM500m.

1.  Revenue from Telenor and reputable telco operators for long term 15-12-27 years.

2.  Management expect EV/EBITDA = 7-8 times assuming without tenancy growth.  So EBITDA is expected 65-70m each year. (Basically is cashflow without taxation).

3.  Management expect growth in Tenancy, hence, it is not too far fetch to have a EV/EBITDA of 6.5x.  So EBITDA is about 75-80m each year.

4.  Depreciation for tower is about 25 years (Vietnam will be lesser-brownfields), so assume 20 years.  500m/20 = RM25m year per annum

5.  Interest USD70m loan x 4% = USD2.8m x 4 = RM11m.

6.  Tax, assume 25%, PBT = 77m - 25m - 11m = RM41m.

7.  Profit after tax or PAT = RM41m x 75% = RM31m.

8.  Return on PROJECT = 31/500 = 6.2%.

9.  Equity = RM84m + RM48m = RM132 (Myanmar + VIetnam)  = Profit attributable to shareholders = RM31m x 67.5% = RM21m.  So, ROE = 21/132 = 16% 

10.  2017 (F) = RM29m (2016E) + 21m/ (792+79) = RM50m/871m = 5.7 sen per share x 18x = 103 sen 

11.  Lately, OCK together with Indochina Partners/PE/Placees and Bankers raised RM700m, far higher than 2016 IPO to-date, raised about RM400m.  The important question is whether "Telco Tower Owner" has a good business model? Can take a look at India, Indonesia, USA.  Based on the reference, not bad indeed.