RHB Research sees a strong earnings uplift in FY22F from the recovery in site contracting works. OCK Group is a key beneficiary of 4G/5G infrastructure deployment, with substantial annuity revenues from the regional tower leasing business. Their forecasts and TP are retained, pending the results briefing. A 2% ESG discount is imputed on our TP, based on our in-house methodology. They maintain BUY and set target price, with 45% upside.
Telco network services (TNS) revenue up 18% QoQ (+1.5% YTD), driven by a strong rebound in site contracting works (+59%). This follows the reopening of economic sectors post MCO 3.0. We gather that the TNS orderbook has surpassed MYR280m, or over two-thirds of TNS contribution in FY21. Importantly, the group continues to see strong recurring revenue contribution at 66% in FY21, primarily driven by the captive telco site leasing business (33% of group revenue/78% of EBITDA).
Although FY21 core earnings (MYR25.9m) were flat YoY but is considered as a laudable achievement in our view, considering the multiple iterations of the MCO that impacted project deliverables and billings. Core EBITDA grew 17% QoQ (+5.2% YTD) on steady margin, anchored by the regional site leasing business. A sweetener was the 0.5 sen DPS declared (payable 25 Mar) with the last
dividend distribution back in FY18 (1 sen).
The year was characterised by significant depreciation of the Myanmar Kyat (MMK), owing to the political coup. This impacted translated revenue from Myanmar, with additional setbacks in the form of revenue penalties for power disruptions at remote sites. Revenue contribution from Myanmar fell 9% in FY21 and 21% YoY in 4Q21, as the MMK depreciated over 20% against the MYR. With political temperatures still high, amidst the controversies surrounding the change in Telenor Myanmar’s (TM) ownership, site deployment delays are not unexpected. A saving grace here is the much lower dependency on TM in recent years (no new site awards in FY21), with the void filled by the aggressive rollout of 4G sites by Mytel, its biggest customer. We gather outstanding sites in hand for Mytel total some 153. Inorganic acquisitions in Vietnam saw 506 towers added in FY21, with the group targeting another 800 sites in FY22F.
While the jury is still out on the eventual 5G wholesale model to be adopted by the Government, OCK remains a key beneficiary of new site rollouts, on the back of the aggressive population coverage targets (80% by 2024).
Key risks of OCK Group are weaker-than-expected earnings, site deployment delays and execution.
