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This article first appeared in The Edge Financial Daily on June 10, 2019

OCK Group Bhd
(June 7, 46 sen)
Maintain buy with a lower target price (TP) of 70 sen:
Our TP is derived from a fully diluted earnings per share of 2.8 sen pegged at a price-to-earnings ratio (PER) of 25 times. We retain our positive outlook on OCK as a group despite a slower-than-expected roll-out of its tower business order book.

Risks include i) further slowdown in the roll-out of towers, ii) competition for solar projects, and iii) increased borrowing and finance costs.

Year-on-year revenue increased RM5.98 million (+6.1%) from RM97.5 million to RM103.5 million, from higher overall sales in each of its business segments. Profit before tax (PBT) fell 6.4% as margins narrowed, accentuated by the accounting impact of Malaysian Financial Reporting Standard 16 (MFRS 16) on depreciation and amortisation and finance cost.

Profit after tax (PAT) fell, attributed to the inclusion of unrealised foreign exchange gains of RM2.2 million in the first quarter of financial year 2018  (1QFY18). Factoring this out, PAT has gone up 39.6% from a lower PAT in 1QFY18 of RM4.8 million to RM6.7 million in 1QFY19.

Quarter-on-quarter revenues fell 23.1% to RM103.5 million from RM134.5 million, and PBT clocked a decrease of 37.7% from RM13.2 million to RM8.2mil caused by the adoption of MFRS 16 and coupled with lower segment sales from telecommunication network services, trading, and mechanical and electrical engineering services.

Sales revenue missed our expectations at 18.6% of our forecast. PAT for the quarter missed our forecast as well at only 19.8% of our full-year estimates. We tweak our earnings forecast downward by 12.5% as we lower our expectations, in anticipation of a slower roll-out.

The group’s outlook looks to improve with tailwinds such as the National Fiberization Connectivity Programme, and expansion of major operators’ telco infrastructure to meet growing demand.

OCK aims to maintain its status as a market leader of network-managed services, currently managing over 28,000 telco sites in Malaysia and Indonesia, as well as focus on its recurring revenue stream from its tower leasing business.

In Myanmar, OCK owns over 900 towers with a tenancy ratio of 1.4 times and targets improving that ratio to 1.6 times. The group has more than 500 telco sites outstanding in its order book.

In Vietnam, OCK owns more than 2,500 telco sites . — Inter-Pacific Research, June 4

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