OCK Group Benefits From New 5G Site Deployment, Co-Locations: RHB Maintains Buy

OCK Group remains a good proxy play on the government’s pivot to a dual 5G network model. Management is also looking at refinancing its USD debt which portends significant interest cost savings from FY24F.

“We see the group benefitting from new 5G site deployments and co-locations with a second 5G network set to be deployed in 2024,” said RHB Research (RHB) in the recent Malaysia Company Update Report.

The strengthening narrative on in-building coverage should also contribute positively with OCK having undertaken inbuilding sub-contract works for Digital Nasional Berhad and mall operators.

The group’s outstanding orderbook of more than RM300m which comprised largely of JENDELA-related projects represents 1.1x the revenue of its telco network services segment in FY22.

The group is looking to refinance its USD debt with a sukuk facility which should lower financing cost going forward and mitigate FX-related risks. Of the RM574m debt sitting in its books as at 1Q23, 51% are USD denominated.

“We estimate interest savings of MY14-15m pa based on the current cost of USD debt of more than 8%. This is significant relative to the group’s financing cost of more than RM30m pa. The new debt facility also offers headroom for solar-typed ventures, which OCK has embarked on, and to meet working capital needs,” said RHB.

While the solar segment makes up less than 5% of group revenue, it offers recurring revenue with earnings before interest, tax, depreciation margin in excess of 80%.

The group has submitted a bid for a 30MW solar farm under the Corporate Green Power Programme (CGPP) with a virtual power purchase agreement deal struck with a customer/off-taker.

“If successful, this would add to the existing solar farms/ventures which are premised on the feed-in-tariff and net metering schemes. We see the CGPP as an attractive avenue for corporates to procure renewable energy credits to offset their carbon footprint,” said RHB, maintaining Buy for the stock.

OCK was the first foreign company to be awarded an independent towerco license by the Laos’ Government with the inking of a JV agreement with the Ministry of Finance in Oct 2022. Discussions are on-going with a local telco for the deployment of 5G sites in Vientiane.

It would adopt a similar model as with the Myanmar towerco with upfront capital expenditure and the sites eventually leased to telcos via long-term lease agreements. Key risks are weaker-than-expected earnings, execution, and delays in site deployment.

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