KUALA LUMPUR (Feb 16): RHB Investment Bank Research is seeing growth headwinds for OCK Group Bhd as it factors in political and execution risks following the military coup in Myanmar.

In a note today, its analyst Jeffrey Tan said network shutdowns or delays in site deployments from the emergency order could present some earnings and execution risks to OCK’s tower business (towerco) in Myanmar.

“However, we believe the impact should be manageable as communication services are deemed essential, and mobile operators are bound by long-term master lease agreements (MLAs) with committed site rentals.

“In the worst-case scenario of a force majeure being invoked, we believe OCK could still look to grant some rebates on site rentals and offer flexible repayment terms. The junta is unlikely to resort to punitive economic actions as it would exacerbate social unrest and further threaten economic activities amid challenges posed by Covid-19,” Tan noted.

He said OCK’s Myanmar towerco accounted for about 18% and 45% of group revenue and earnings before interest, taxes, depreciation and amortisation (EBITDA) for the cumulative first nine months ended Sept 30, 2020 (9MFY20).

“A 10% fall in the SOP (sum-of-parts) valuation of the Myanmar business would impact our TP (target price) by 4%, all else being equal. We gather the group has 1,073 revenue-generating sites in Myanmar, with an outstanding order book for 200 new sites. The latter could face some delays due to widespread street protests affecting work projects,” the analyst added.

RHB increased the risk premium in its discounted cash flow valuation of the company's Myanmar business in light of the development.

The research house maintained its "buy" call on OCK but with a lower TP of 59 sen from 63 sen previously.

“Its valuation is at an undemanding six times FY22 EV (enterprise value)/EBITDA, at -2SD (standard deviations) from the historical EV/EBITDA mean, with near-term weakness presenting opportunities to accumulate the stock,” said Tan.

At the time of writing today, shares in OCK had risen one sen or 2.38% to 43 sen, valuing the group at RM458.68 million. It had seen some four million shares traded.