OCK is poised to benefit from the second 5G network which will translates to more investment in telco infrastructure including new sites. Its order book stands at RM320m at present while prospects for job wins are strong underpinned by the roll-out of Jendela 2, and 5G in Malaysia and regionally. We maintain our forecasts, TP of RM0.73 and OUTPERFORM call.

We came away from OCK’s post-results briefing feeling upbeat of its prospects. The key takeaways are as follows:

1. OCK is poised to benefit from a second 5G network which will translates to more investment in telco infrastructure including new sites. Meanwhile, existing sites will benefit from higher tenancy due to co-location.

2. OCK’s current order book now stands at RM320m mostly in Malaysia. Its, expected to deliver 30 new sites for DNB (5G and 4G) and looking to add another 50 towers by end of 2023. There was no further news on the prospect of RM200m contracts from East Malaysia (Under Jendela 2). OCK hopes to recognise at least 50% of the RM320m order book by end of 2023. Given the incoming Jendela 2, second 5G network, and rapid 5G roll-out in the Indochina region, we expect its order book to remain robust into 2024.

3. Its Laotian JV appointed a CEO recently who is experienced in the tower business in both Myanmar and Vietnam. OCK is expected to deliver 50 5G sites in Vientiane on a build-and-lease model by the end of 2023, pending commercial and business agreement to be finalised. Meanwhile OCK is also talking with other operators namely ETL and Lao Telecom for deployment of 5G at other areas.

4. Status of its tower portfolio remains at 5,300 (Malaysia – 600, Vietnam – 3,500 and Myanmar – 1,200++). OCK hopes to add in another 800 to 1,000 towers in Vietnam by end of 2023. For Myanmar, it is targeting another 70 towers to be completed by end of 2023. Tenancy ratio remains high at 1.42x (Malaysia), Vietnam (1.4x) and Myanmar (1.38x).

5. To mitigate the impact of higher interest expense due to the strong USD and higher borrowings as order book increases, OCK is expected to restructure its loans to a more manageable Malaysian exposure.

6. OCK does not see adverse impact of its tower management services in Indonesia on merger plans between Telkomsel and IndiHome. Although managed sites will be gradually reduced in the medium term, OCK believes its market share (c.45%) will improve as the Indonesian telco industry grows in the long run. 1QFY23 saw revenue from its managed services shot up by more than 20% YoY.

Forecasts. Maintained.

We also keep our TP of RM0.73 based on a on 7x FY24F EV/EBITDA (at a discount to 9x EV/EBITDA we ascribed to EDOTCO to reflect OCK’s relatively smaller size). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 3).

We continue to like OCK for: (i) the tremendous growth opportunities in the telco infrastructure space both at home and abroad especially in the under-served areas, (ii) being well positioned to benefit from the Jendela initiative and 5G roll-out domestically and other ASEAN markets, (iii) its earnings stability and visibility with about 53% of its revenue being recurring from telco tower maintenance (55,000 towers of which about 80% are in Indonesia) and telco tower leasing, and (v) its potential expansion to other new markets in the region i.e. Indochina, Kalimantan and the Philippines. Maintain OUTPERFORM.

Risks to our call include: (i) regulatory risk, (ii) delays in the 5G roll-out and Jendela, and (iii) risks associated with operating in developing economies.

Source: Kenanga Research - 1 Jun 2023