OCK Group Bhd (OCK) is expected to see double-digit year-on-year (YoY) growth in revenue and core earnings to be sustained in 4Q23, with FY23F marking records for it, according to RHB Investment Bank (RHB IB).
“Growth continues to be fuelled by robust site contracting works and steady tower-leasing revenues which are recurring in nature,” it said in its Malaysia Results Revie today (Feb 16).
RHB IB expected a sterling close for the telecommunications network service provider for the fiscal year, and do not rule out nominal dividend given the improved showing.
OCK is slated to announce its full-year (FY23) results on 27 February 2024.
“We expect a double-digit QoQ and YoY growth in 4Q23 revenue and core PATAMI supported by stronger project revenue recognition and the steady growth of the tower-leasing and site maintenance businesses.
“Full-year revenue and earnings should hit record highs, with the telco network services (TNS) unit, which recorded 86% of revenue in 9M23, contributing the bulk of growth.
“Given the improved showing, we do not rule out a nominal dividend, which has not been factored in by the consensus. OCK last dished out dividends in FY21 totalling MYR0.005 per share,” it added.
Therefore, the research house kept its BUY call and increase the sum of parts (SOP)-based target price (TP) by 20% to RM0.65.
“The stock trades at inexpensive less than 5x FY24 enterprise value to its earnings before interest, taxes, depreciation & amortization (EV/EBITDA), with the tower business offering latent value alongside the group’s strategic exposure to 5G infrastructure assets.
“The spin-off of its towerco remains a key catalyst,” it said.
RHB IB said OCK’s orderbook stands at RM250 million as at end-December 2023, comprises of National Digital Network (Jendela) at RM105 million) and other projects at RM145 million.
Upside would come come from new JENDELA Phase 2 awards, which are yet to be unveiled, it added.
Beside that, it said that the group’s financing cost for its USD-denominated debt, which stands at RM260 million in 3Q23, is set to decline.
“The refinancing rom the proceeds of a new sukuk facility RM700 million would translate into significant interest savings of RM14 to 15 million for the group from FY24F onwards.
“The sukuk also offers financing headroom for new renewable energy and solar-type projects it is pursuing.”
OCK currently owns 29 solar farms, with 14MW in combined capacity via the feed-in-tariff (Fit) and net energy metering (NEM) schemes.
The research house also see the latent value in the group’s tower leasing unit (OCK Sea Towers) with towerco earnings before interest, taxes, depreciation, and amortization (EBITDA) making up 70% of group EBITDA.
“Assuming the towerco business is valued at 7 to 12x EBITDA, at a discount or in parity with regional peers, the towerco could be valued at RM600 million to RM1.3 billion, implying a valuation uplift of RM0.20 to 0.85 sen based on our estimates.
“This compares with OCK’s market capitalisation of under RM600 million currently,” it said.
The key downside risks to RHB IB’s call are weaker-than-expected earnings and margins, project execution delays and policy and regulatory setbacks across markets and a 0% environmental, social, and corporate governance (ESG) premium is built into its TP, as per its internal methodology.
