OCK Prospects Rosy After Securing 5G And Tower Contracts

During a recent engagement with OCK Kenanga felt reassured of its prospects, in particular, a bumper FY23 with key takeaways including its two potential contracts worth a total of RM250m comprising a tower construction job in East
Malaysia and a publicly funded fiberisation work package.

Kenanga forecasts assume 50% of contract revenues and profits from these two contracts to be recognised in FY23 (with the remaining 50% in FY24). it believes the assumption is realistic as we understand that there are strong commitments from the clients to expedite the projects.

Coupled with a locked-in order backlog of RM280m comprising various tower construction, tower upgrading, and fiberisation works for the public sector (under the Jendela initiative), telco operators, and a telco equipment maker, OCK’s contracting revenue is estimated to rise from an estimated RM90m-RM100m in FY21 (relatively low due to the movement restrictions during the pandemic) to RM130m-RM150m in FY22 and >RM150m in FY23.

This is more or less in line with forecasts. OCK is already involved in the 5G deployment locally in two ways. Firstly, it is upgrading 160 of its existing 4G towers to support 5G service (also known as co-sharing), which will in turn be leased to Digital Nasional Bhd (DNB). Thus far, it has completed the upgrading works for 30 towers. Secondly, it is involved in certain parts of the work in the construction of 80 new 5G towers of DNB.

Kenanga maintains its forecasts and TP of RM0.95 based on a 7x FY23F EV/EBITDA (at a discount to 9x EV/EBITDA ascribing to edotco to reflect OCK’s relatively smaller size). There is no adjustment to TP based on ESG given a 3-star rating as appraised.

Outlook on OCK can be viewed on the tremendous growth opportunities in the telco infrastructure space in Vietnam and Myanmar which are still relatively under-served, especially in the rural areas, it is well positioned to benefit from the Jendela initiative and 5G rollout in Malaysia, its earnings stability and visibility with about 63% of its revenue being recurring from telco tower maintenance and telco tower leasing, it being a proxy play to the relocation of Indonesia’s new capital city to Kalimantan in terms of telco infrastructure, given its dominant market position in Indonesia, and potential business opportunities in the Philippines.

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