• 9M24 core net profit came in below our and consensus expectations, accounting for 64% and 58% of both respective forecasts

• Weaker earnings on lower revenue contributions from the TNS and green energy and power solution segments

• Cut 2024E earnings by 7%. Maintain BUY with unchanged target price at RM0.85

Results below expectations

Stripping off RM8.1m forex gains and RM7.6m impairment losses, OCK’s 9M24 core net profit of RM25m (-23% YoY) was below ours and consensus estimates, accounting for 64% and 58% of both full-year forecasts. The deviation against our forecast was attributed to weaker revenue in the TNS and green energy and power solution segments, which declined 12% and 45% YoY, respectively. This was primarily due to reduced spending by mobile operators amid uncertainties surrounding 5G development, leading to lower orderbook replenishment, as well as solar farm downtime. EBITDA margin was flat at 29% due to stringent costs optimisation measures.

Anticipating a better quarter ahead; positive prospects in 2025E

Sequentially, 3Q24 revenue improved marginally by 1% QoQ to RM160m, with improved TNS (+8%) segment offsetting weaker M&E engineering segment (-77%). EBITDA margin contracted by 3ppts to 27%, resulting in a lower core net profit of RM6m (-30% QoQ). Notwithstanding, we expect a stronger quarter ahead on quicker telco infrastructure deployment following the award of second 5G operator license to UMobile, an existing customer. Backed by its RM812m tender pipeline, consisting of RM65m from TNS and RM747m from non-TNS, we anticipate more projects to be underway with latest orderbook currently standing at RM320m.

Maintain BUY with target price of RM0.85

We cut our 2024E earnings forecasts by 7% to account for the weak TNS business performance and disruptions in the solar and power energy business. We reiterate our BUY rating with an unchanged SOP-derived target price of RM0.85. Near-term catalysts include the deployment of 5G towers following the announcement of the second 5G network provider and a sizeable RM704m digital solution contracts. Key downside risks include unforeseen delays in project deployment and execution and weaker-than-expected results and margins.

Source: Philip Capital Research - 29 Nov 2024