• Keep BUY and SOP-based TP of MYR0.60, 58% upside with c.2% FY23F yield. OCK Group’s 1Q23 results exhibited typical seasonality, with a QoQ weakness in revenue and EBITDA. We expect earnings growth to pick up from 2Q23 onwards, on the back of National Digital Network (JENDELA) -related and 5G billings, and the delivery of built-to-suit sites in Myanmar and Vietnam. The stock remains our preferred small-cap telco exposure. Our TP has a 2% ESG discount built in.

• Robust double-digit revenue growth, power solution sales up 93% YoY. Group revenue and EBITDA surged 41% and 30% YoY, with double- digit growth across all revenue segments. On higher financing cost (+73%), core earnings grew 17% YoY (-14% QoQ) to MYR8.6m. Overall results were in line with our/consensus forecasts (22%) with typical 1Q revenue seasonality observed (lower billings). The lynchpin telco network services (TNS) segment (+35% YoY), which includes the regional towerco businesses, accounted for 84% of revenue in 1Q23 (1Q22: 88%, 4Q22: 87%). A key standout was the 54% QoQ jump in green energy and power solutions revenue, to a record high. This stemmed from a large-scale 500MW green data centre (DC) project secured in Johor (Sedenak Tech Park) which boosted power solutions sales by 66% QoQ.

• Site leasing revenue grew 11% YoY (-0.2% QoQ) on more built-to-suit sites in Myanmar and Vietnam, and would have been stronger if not for the Myanmar kyat depreciation (-18% YoY). Including the site maintenance jobs, group recurring revenue made up c.53% of total revenue in 1Q23 (4Q22: c.50%).

• Outstanding orderbook at >MYR320m with more than half of this from the TNS segment (JENDELA-related). We continue to see the group benefitting from the ramp-up in 5G sites to meet the 80% population coverage target by end-2023 (currently >60%). Management is upbeat on its longer-term prospects, with the Government’s decision to shift into a dual 5G network model providing scope for more site deployments and co-location demands.

• Stock sentiment likely weigh down by towerco uncertainties. Our forecasts are maintained. OCK’s share price has dropped by >8% YTD despite its record FY22 earnings, and the strong recovery in site contracting revenues. Greater clarity on its plans to unlock the value of its towercos (under OCK SEA Towers) is a key re-rating catalyst. Key risks are weaker- than-expected earnings and margin, execution and site deployment delays.

• ESG framework update. As there is greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 31 May 2023