Is this article FAKE or FACT??

ANALYSTS' FAIR VALUE

 Analysts used fully diluted shares to estimates their fair value = 95 sen

Should there be no conversion of warrants, their fair value  = 124 sen

UOB estimated about 75% of the fair value comes from Towerco biz segment using DCF, hence, OCK is not just provide Telco Network Services, it provide long term leases to major telcos (Similar to Airasia leasing biz, which is lucrative).

COMPARISONS 

Towerco* - refers to OCK Group

Good news is, OCK already owned 3,000 towers/BTS with average tenancy of about 1.25x.  This is a very good cash cow, with more than 20 years of cash flow and EBITDA Margin of >55%.

Although all 3 has its advantages and disadvantages, Towerco growth is benefiting from the tower sharing by major telcos across ASEAN.  Hence, the growth for OCK is in 3 fold, one, more towers to be built, two, higher tenancy ratio and third, upgrade of 3G to 4G and more.

DEPRECIATION v CASH FLOW FOR TOWERCO

1.  Yes, depreciation is a real cost.

2.  But, for towerco, the initial maintenance are low (like cars) and it goes up gradually.

3.  Hence, cash flow tend to perform better than profit and loss (but it is normally used to par down the loans)

4.  EBITDA Multiple will be in single digit in one or two years time, compared with region of 10-13 times.

5.  Most analysts used DCF method to estimates, with actual figures in number of towers and estimated revenue, the estimate deviaitons is lower.  

AMORTISATION v CASH FLOW FOR TOWERCO

1. Slightly vague.

2.  Amortisation normally follows accounting concept, but in reality, as WB argue, may be irrelevant as long as company can generate economic income for a long period of time.  Therefore, cash flow will be better than profit and loss account.

SHARE PRICE AND WARRANT PRICE

As at 6 March 2018, the mother share is about 80 sen.

The warrant, is about 23 sen, at exercise price of 71 sen (total 94 sen).

Share price has not move over last two years, (not much contributions from towerco in terms of P&L, but it has improved cash flow substantially, look at EBITDA, 60m,99m, 115m(f), 135m(f)), 

(One of the major item in the P&L is the depreciation and amortisation is huge, i.e. about RM33 million, much higher than its P&L figure of RM25m).  Anyway, PE is not a yardstick for measuring the its valuation.

CONCLUSION - strong net operating cash flow

WHAT IS THE NET OPERATING CASH FLOW* FOR 2018 AND 2019 (* exclude depreciation and minority interest)

Extracted From Kenanga Report dated 28 Feb 2018 

2017(A)   66m

2018        75m

2019        92m

(Why Dep & MI is excluded, because, maintenance cost is accounted & OCK is the borrower - hence they are in control of operating cash flow).  This is the timing different of depreciation & maintenance costs.

Interest expense for 2017 to 2019 (22m, 27m, 29m).  Upon monetising the towerco (IPO), substantial loan will be par down & the additional equity raised will be used for further M&A or organic expansion.

MARKET SENTIMENT & VALUATION @ 12 March 2018 - AN OBSERVATION

1.  MARKET MOVES MAINLY BY SENTIMENT (GENERAL SENTIMENT) - GOOD SENTIMENT FOR BLUE CHIPS

2.  WEAK SENTIMENT FOR SECOND AND THIRD LINERS - DISREGARD UNDERVALUED OR OVERVALUED STOCKS

3.  BESIDES THE OVERALL SENTIMENT, THE NEXT IMPORTANT SENTIMENT IS THE SECTOR SENTIMENT AND POPULAR PLAY.  ITS POINTLESS WHETHER THE SAID STOCKS IS OVER OR UNDERVALUED. 

1) WHEN SECTOR SENTIMENT IS BAD FOR SAY THE STEEL SECTOR DUE TO TARIFF WAR, NO MATTER WHAT YOU SAY OR DO, THE WEAK SENTIMENT WILL OVERIDE VALUE INVESTING, PERIOD.  SIMILARLY FOR OIL & GAS SECTOR, EXPORT RELATED SECTOR (RM APPRECIATION).

2) POPULAR PLAY (WITH SENTIMENT) - SOME LAST LONGER THAN OTHERS, SOME LAST A YEAR, SOME A FEW MONTHS, SOME A FEW WEEKS, WE HAVE SOME EXAMPLES, LOGISTIC PLAY - CENTURY, POS, GDEX & OIL & GAS PRICE WENT UP - WE HAVE UMWOG, SAPNRG, SUMATEC, HIBISCUS, REFINERY PLAY - HENGYUAN & PETRONM, STEEL PLAY - ANNJOO, MASTEEL, CSC, ETC

3) BAD SENTIMENT SECOR

CURRENTLY BAD SENTIMENT FOR PROPERTIES - MAHSING (ALTHOUGH PROFIT FLAT - SHARE PRICE DROPPED SIGNIFICANTLY), SO IS ECOWORLD, SPSETIA, UEMSUNRISE, ETC. THEY ARE DOING GROUP IN SAME SECTOR - DEEMED AS GLUT.

CONSTRUCTION - OVERALL ABOUT LESS BULLISH, ALTHOUGH MANY CONSTRUCTION COMPANIES EXPECTING MORE BIG INFRA CONTRACTS ROLL OUT.

TELCO - TELCO HAS BEEN STAGNANT FOR ALMOST 2 YEARS PLUS, DUE TO NEW LICENCING ON SPECTRUM AND THIS SPILL OVER TO LESS EFFECTED BY TOWERCO.  INVESTORS MAY NOT UNDERSTAND THAT TOWERCO IS ACTUALLY THE BENEFICIARY OF TELCO CONSOLIDATION ON THEIR TOWER TRANSMISSION (JUST LIKE DOWNSTREAM OF OIL & GAS, THEY ARE  LUMPED TOGETHER - WITH EXCEPTION LIKE DIALOG).

PLANTATION IS ANOTHER VICTIM OF WEAK SENTIMENT - PRICES FLATTISH AROUND RM2500 TO RM2700 PER MT AS COMPARED DURING THE PEAK 3500 TO 4000 PER MT.  AFTER THE PEAK, MANY PLANTATION COMPANIES WENT INTO CONSOLIDATION (HAPPEN TO MAYBULK - GLUT OF DRY BULK & OTHERS.). 

SO, AFTER REFINERY PEAK (CRACK SPREAD) IT WILL REVERT BACK TO LOWER NEXT COUPLE OF YEARS.

4) GOOD SENTIMENT SECTORS - ESPECIALLY BLUE CHIPS

BANKS (UP 20-30%), BURSA, CONSUMERS (NESTLE, DUCTH LADY, AJI, ETC), GLOVES (UP A LOT NOW SLOWING), PMETAL (ALUMINIUM - NOW SLOW DOWN DUE TO TARIFF BY USD).

CONCLUSION - SENTIMENT

THE ONLY WAY TO RIDE OUT OF ALL THIS SENTIMENT FLUCTUATION - "VOLATILITY OR POPULARITY RISK" IS TIME, INVEST IN LONG TERM, AND IT WILL BE SMOOTHEN OUT BY TIME.  THAT'S WHAT WB CALLED IT LONG TERM INVESTMENT, LIKE COKE, KRAFT HEINZ, ETC.

EARNINGS GROWTH & SOLID MANAGEMENT WILL PREVAIL IN THE LONG RUN.   WHEN THE SENTIMENT SUBSIDES, PARTICIPANTS WILL START LOOKING FOR VALUE AGAIN. AND VALUE WILL IN LONG TERM, REPRESENT THE MARKET UP AND DOWN.

JUST IMAGINE, HOW CAN SAY, COCA COLA TRADED AT PE OF SAY 2 TIMES? HIGHLY UNLIKELY.

NEW INFORMATION - extracts from Kenanga Research Mid March 2018

Myanmar, being one of the new but yet growing tower market in the Asia region, is seeing a surge of new entrants rolling out BTS for fourth operator Mytel. On average, most of the mature towers that are two-plus years old would have a tenancy ratio around 1.6x and is expected to surge beyond 2.0x once Mytel goes online in 2018 and more co-locations are shared among the industry incumbents’ (MPT, Telenor and Ooredoo), according to the research outfit. The Indonesian tower market, on the other hand, remains strong with new builds and co-locations being added. Valuation-wise, there are about 407k towers being transacted during the 2008-2017 period in Asia with an aggregate deal value of c.USD17b, implying a cost per tower of USD114k, according to TowerXchange.

IS IT AN HONEST MISTAKE BY UOB KAYHIAN?

UOB give a value of RM5m to the SOTP on assumption of full conversion of warrants (actually is RM187m) into shares.

Similar to the situation, Gadang's analyst (TA Research), also use SOTP to calculate its fair value,but giving TWO scenerios.  ONE, no conversion, and two, full conversion of warrants into shares.  For full conversion, fair value for full conversion is RM160m (proceeds from conversion), used as the fair value on the SOTP.

So, UOB should gave a value of RM187m fair value for SOTP for full conversion of warrants (because that is the amount received from the full conversion of warrants) intead of using RM5m only.  

With this adjustment, the fair value of OCK will be RM1.11 per share (full dilution) and RM1.24 per share (no dilution).

(SOTP - Sum of Total Parts)

Top up a bit of OCK WA on 29 March 2018 @ 19sen

Can anyone confirm? FAKE or FACT?