WHAT DID UOB KAYHIAN RESEARCH SAID?

The last I remembered, UOB valuation of OCK Group are as follows:

UOB value it at about RM1.05 per share, using fully diluted number of shares of 1.135 billion shares (although I felt 871 million shares should be used, because no value was given to the warrant conversion). Myanmar and Vietnam towers fair value using DCF method.

31 May 2018, UOB reduces its target price (from 1.05 to 0.80) on towerco biz using EBITDA Multiple for FYE19 of 8.8x (previously 10x) and TNS biz PE of 12x (instead of 15x previously in view of headwind on telco capex).

1 June 2018, Kenanga also reduces its fair value to 85 sen from 95 sen (TP set not too long ago)

(Btw, I only use their analysis as a reference)

FOCUS OF VALUATION

For updates from the AGM, I will only focus on the tower business, as it represent 75% of the total fair value.  During the AGM, discussion is focus on Tower segment.

UPDATES DURING AGM IN 2018

TBB - Orderbook to be built (target one year).

MD said, tenancy ratio can attain 1.6x in one to two years.

TBP - TO BE PURCHASED (estimates only)

Malaysia - about 300 towers

POST GE14

MD said is positive for OCK - at the moment most of the towers owned by states, OCK only build in Penang and Selangor.  May be more opportunity under new government.

Sarawak - has intention to expand towers.

CONCLUSION

Overall, MD is positive with growth in towers.  Will continue to expand.

For info only.  On the Top 30 warrantholders @ April 2018, MD bought about 16million warrants (I believe the cost is about 27 sen).

My personal view - tower building in Myanmar is slower than expected and tenancy ratio is better than expected and growing very fast.  Hopefully, new tower building will be built in shorter time (with more experience now).  Since, this is a long term project, i.e. contract is 27 years (17+5+5), revenue is sustainable and also, there is room for tenancy ratio expansion because OCK provide a competitive lease rate that attracted all major telcos, Telenor, MPT, Ooredoo and Mytel.  Focus on EBITDA growth and tower growth.

EXTRA CREDITS (UPDATED ON 15 JUNE 2018) 

Based on UOB 31 May 2018 research report, 1Q18 regional towers (Myanmar and Vietnam) net profits increase 87% to RM7.1m (1Q17: RM3.8m).

PATMI = RM7.1m x approx. 65% ownership = RM4.615m

1) Minimum full year for towerco (Myan + Viet) = RM4.615 x 4 = RM18.5m

2) Green energy (solar) PATMI about = RM4m

3) TNS = approximately RM15-20m or approx. RM16m.

4) Total profits about RM38.5m

CASH FLOW SQUEEZE? 

OCK cash flow appears ok, based on yearly operating cash flow (RM120m and growing) + net receivables less payables (RM180m). Total operating cf + net receivables + cash = RM400m. 

And short term borrowings is about RM280m (of which about RM100m is revolving credit + BA, can be replenished). Interest is about RM20m. 

Cash flow is not a major issue, as its operating cash flow is growing in double digits.

Total EBITDA (120) + Net Receivable (180) + Cash (100) = Total cash available (400) [A]

Repayment of Term Loans (180) + Interest (20) = Total repayment (200) [B]

CASH AVAILABLE FOR EXPANSION = [A] - [B] = RM200m = Able to built about 2,800 towers in Myanmar without raising new funding