SOS, can buy more or not?

Whenever OCK volumes goes up and price is up, some of my friends will text me, what is happening (because I ask them to take a look early last year).  Can buy or not?  Will take this opportunity have a brief understanding for first time investors + my friends.  Of course, the next question, can go up or not?  I leave that to the market.

OCK Group

1.  OCK has about 870m shares and closed at 86.5 sen @ 7 March 2017 with market capitalisation of about RM750m.

2.  OCK also has a huge warrants outstanding of 264m warrants at an exercise price of 71 sen due in Dec 2020, issued on 23 Dec 2015 together with its RIGHTS ISSUE  (about 4 years).

3.  RIGHTS ISSUE completed in Dec 2015, raised RM130m, for Myanmar, build and leaseback of 920 towers with Telenor for USD70m.

4.  Private placement in 2016 of about RM60m for acquisition of SEATH, Vietnam tower owner (1,938 towers) for USD50m.

5.  Profit after tax for FY2016 (31 Dec) is about 26m.  Analyst said, exlduing exceptional item is about RM31m.  A profit of RM1m from Myanmar (about 600 towers) is included.

6.  FY2017 - besides growth of existing biz revenue & profits of 15-20%, it will add its SEATH & Myanmar 630 towers rental deal.

7.  FY2017 - Analysts projected PAT between RM35m to RM45m.

CONCERN

1.  Some are concern about RM285m of trade receivables.  Please get clarifications from management.  Management say it is normal practise in this industry.  Please don't take my word for it.  FY2015 Annul Reports said about half is from telco operators.

The last time I was queried by a reader (on Gadang) when I wrote that management confirm + my fund manager also acknowledge that substantial earnings (80% or more) of Capital City JV has not been recognised in FY2016, the reader asked, do you have any proof?  How to proof, either you believe the management or not.  What else you want? To audit the said figures? If we do not trust the management, don't bother asking or invest in the said company, period.

2.  It can be risk as well as potential.  It will provide good liquidity when it is repaid, almost 33 sen per share.  Mind you, the company is at the moment only 86.5 sen.  On the assumption the trade receivables are repaid, you will get cash of up to RM280m.

3. How would you value the company, assume FY2017 PAT is RM40m with Enterprise Value of about RM470m (assume all trade receivable repaid), the implied PE is only about 11.75x (just as reference).

4. There are two sides to view the trade receivables, it can be perceived as glass half empty, or a glass half full.  And analysts "never" mention this in their research report.  Why? Negligent? Did Brahmal know about this? 

POTENTIAL

1.  Growth in exisitng biz (LTE expansion) in the region.

2.  Myanmar deal with tenancy growth for 630 towers & another 290 more during 1H 2017.

3.  Vietnam deal with expansion, buidling 200-300 new towers + tenancy growth as well.

4.  New build and leaseback for additional 2,000 towers.

VALUATION

1.  INCJ & Khazanah paid EV/EBITDA for edotco's tower 12.5x

2.  OCK group next one or two years EV/EBITDA will be about 6-8x.

3.  In 2016, many are sceptical about the risk of execution of Myanmar deal.  Now that about 70% completed, the risk is mitigated, and is the right time to rerate.

4.  Some high risk takers prefer its warrant at 27.5 sen (today) and exercise price of 71 sen.  Premium is only 13%.  Some are concern that there are 264m warrants. (in practice, normally not exercised)

5.  My personal preference is the warrants with about 4 years to go & the premium of 13% in not consider high.

OTHER INFORMATION (Although no impact on company's fundamental, but, provide some confort to investors that the DD is done on the Company)

1.  Brahmal bought at around 81 sen, in 2016 via private placement. About 3%. (Not sure he sold).

2.  MD bought around 78 sen, prior to announcement, one of the other principal officer sold some below 80 sen.  Both amount is negligible to the market cap.

3.  Was told it is one of many Fong Siling's watchlist counters.

4.  Do have a time frame of 1-2 years to see the growth in earnings.

DISCLAIMER

1.  Not a recommendation of buy, sell or hold.

1.8046 ? Who can break this code, will bring you prosperity?

FROM NANYANG SIANG PAU @ 7 March 2017

OCK集团（OCK，0172，主板贸服股）的股项，在上周五价量齐升。该公司的凭单OCK集团WA（OCK-WA）成交量远超母股，而且更是创下多个月的交易量高位，这相信和该公司最近宣布不俗的业绩增长有关。 

OCK集团母股在上周五是以84.5仙结束交易，而OCK-WA则以25仙闭市。 

OCK集团的主要业务包括电信网络服务、绿色能源和电力、维修工程服务，以及电信和网络产品贸易；出租电信塔和绿色能源，是该公司营业额和盈利的主要贡献来源。 

OCK集团在截至2016年12月31日结束的财年，取得了29%的营业额增长至4亿711万令吉。 

集团净利则从2015年的2560万令吉，略增1%至2580万令吉。 

OCK集团的国外业务尤其是东盟业务，目前已经占了公司约20%的营业额。 

溢价仅13.6% 

为了巩固和扩大公司在东盟电信塔的领先地位，OCK集团在去年于新加坡成立OCK SEA TOWER私人有限公司，为未来在东盟区域上市集资做好准备。 

OCK-WA目前的溢价只有13.6%，这对一项还有接近4年才到期的凭单并不昂贵。该凭单波幅和母股历史波幅相近，表示凭单估价合理。 

OCK-WA在交易角度来看，还是一项很好的投机工具，这是因为该凭单的有效杠杆高达2.88倍。 

该凭单在母股上升时，理论上能够获得比母股高188%的回报率。 

免责声明 

本栏纯属学术上或经验上的建议，读者若有兴趣投资，应该自行深入研究或询问股票经纪才决定，盈亏自负。我们鼓励通过正确的投资方式创造财富。 

(南洋网)

Not sure exactly what it said, I think it said sth, warrants is price at 13.6% premium is not expensive with almost 4 years to go, a good leverage to the mother share, with gearing of 2.88x. OCK-WA a good trading tool to gain higher return from OCK Asean expansion.

EVALUATION OF FY16 - JUST SIMPLE MATHS (updated 9 March 2017)

1. PAT before exceptional items (pre-acquisition exp (2.9)+privateplacement & forex (2.5)) = 31m (FY16)

2.PAT FY17 = FY16 (assume flat) + Myanmar (630towers) + Vietnam (2,000 towers) = RM38m

3. PAT FY17 = Optimistic Scenerio = FY16 x 15% growth + Myanmar (tenancy growth) + Vietnam (expansion 200 towers)

= RM40-42m? (Just a guess)

4. PAT FY18 = ITEM 3 delayed for a year.

5. PAT FY18 = 42m

6. FY15, FY16, FY17, FY18 = 24.7, 25.6, 38, 42  or Before EI = 20.9, 31, 38, 42 (profit double in 3 years 2015-2018).

7. Towers are depreciated for 20 years.  In reality, depends maintenance and tech, some experts said it can last easily 70-100 years.  But this is rather extreme.  So, useful life, just an accounting jargon, expert will tell you otherwise.  30 years is not a big deal.  

8.  Looking from EBITDA perspective, it can be 2-3 times the PAT in next 2-3 years.  However, like you know, depreciation is subjective matter here. Most important factor here, free cash flow sufficient to pay loan.  After paying off all the loan, year 7/8, EBITDA is highest. Similar to PALM OIL biz, Takes 3/4 years to get it ready for harvest +3/4 years to break even, after 8 years and paying off loan, all cashflow goes to owner.  Palm Oil can last 25-30 years.  So, can telco towers.  Towers gets its rental almost immediately after completion is say 1to3 months and deliver to the telco,

EBITDA of towers owner is quite like palm oil (50-60%), but not effected by CPO fluctuation, El Nino or La Nina, or export tax.  Biz model is unique and NOT BAD - sustainable for 20-30 years.

9.  What happen if OCK decided to grow again in 2018?

10.  This is a long term stocks, but need to monitor carefully.  TSH was like OCK, started with 300-400m market cap, today is RM2.4billion.  OCK is now 750m, can it become TSH in next 4-5 years?  I am not a fortune teller, lets evaluate what management is doing on and off.

11. OCK & its warrants are a frustrating counter to hold if you do not have a long term view (2-3 years).  

Why?  Every now and then, there will be high volume (i.e. due to press news, new major investors, good results), when volume goes up 10-20 times the normal, then after that, back to square one. (UNLIKE EKOVEST - uptread for almost a year, more than doubled, even after split and special dividend).  

In essense, it shake off the day traders.  After 3 days of advance (25 to 28 sen), it goes back into coma (low volume).  This apply both to the mother and warrants.  You bought it say at 27 sen when market is HOT, and it dropped back to 25 (make you look not smart), after 3 days high volume, you may think, sharks, get stuck again.  

The next time (say 9 months later) it goes to 29-30 sen, no brainer, sell for a 10% gain.  We suddenly feel smart again.  Then you left this counter, one fine day 3/4 years down the road, warrants is due in Dec 2020, take a look at warrant price, about 89 sen.  (you look back, if I am cool for the 3/4 years, kept the 27sen and now is 3.3 times higher, I miss the bloody boat again).  Life goes on, ....... searchin for another TSH or OCK again, sigh........... .  

12.  Buying higher does not mean you are taking higher risk.  One year back, say warrant is 22 sen, OCK has not build a single tower in Myanmar, today you pay 27 sen, you have 630 towers built & 1300 towers acquired, the risk is different vs early 2016.  These two projects is bring good cash flow increased sustainable cash flow to the company.  WB said, short erm market forecast (fortune tellers) are dangerous.  Why, because this is the wrong perspective to take when it comes to investing.

13.  We may not see what is going to happen 10-20 years down the road, but you can always see how the management allocate its capital.  Monitor it.  Look for sustainable engines, with growth will be just great.

14.  FY16 Balance Sheet shows that Equity for sharehoders is about RM420m.  If we look at it carefully, about RM200m was raide from rights issue (Dec15) and private placement (June16?) for Myanmar and Vietnam projects, and profits are not accounted in FY2016.  So, the Equity for the existing business is RM220m that produce RM30m.  ROE is not too bad = 13.6%.

ROE for Myanmar and Vietnam projects will be low in the early years, due to depreciation + loan interest (like any long gestation concessionaire whether IPP, water, or toll).  When the growth comes in, ROE will improve slowly.  Once, interest is significantly paid down say, in year 4, ROE will touch double digits.  Moving on, after all the loans repaid, ROE will look great (interest cost is as high as 17-20m), unless the company decided to go into another investment of similar type, high capex.

15. Loan will be about RM250m and assumed 6%p.a. = RM15m p.a. Assume paydown of RM40m a year, interest will reduce RM2.4m each year.

16.  Paying 11 sen for time value, with 4 years to expire in the warrants, and an expected PAT CAGR of 15-20% FY16-FY20, for me is a gread deal.

17.  I personally like to split the company into two segments, Tower Ownership Biz + Non-Tower Ownership Biz.  The Non-Tower Ownership Biz is doing ROE of 14% and growing.  Tower Ownership Biz (i.e. Myanmar + Vietnam towers + tenancy growth + expansion growth), frankly, is better than IPP and Toll Roads.

18.  Unpolished Gem? Warrant is 27 sen @ 9.3.17. Can it double or triple or quadruple before expiry? Am not surprise.  By that time, many investors will understand the Tower Ownership Biz better.. Will see. (10.3.17)