This article first appeared in The Edge Malaysia Weekly on April 17, 2023 - April 23, 2023

OCK Group Bhd, one of the country’s largest telecommunications tower companies (towercos), is looking to restructure its businesses by separating the tower business from the managed services business, with the possibility of listing the former.

OCK founder, largest shareholder and group managing director Sam Ooi Chin Koon says the group is looking to restructure its telecommunications network services (TNS) business so that the value of the tower business could be better appraised by the investing fraternity.

“If you look at European and American towercos, they trade at around 20 times earnings before interest, taxes, depreciation and amortisation (Ebitda). But in Asia, it would probably be 10 to 14 times. So, if you look at OCK’s total Ebitda of about RM140 million for its tower business, will you ascribe [a valuation of] 10 times?” he says in an exclusive interview with The Edge.

“That’s why I say our company is priced at a lower level than the market. Our debts are only about RM500 million. Even if you take an Ebitda multiple of 12 times and minus the debts, I think you will still arrive at a valuation of over RM1 billion, and that’s only for the tower business,” says Ooi.

The low margins of its managed services business as competition heightens is one of the reasons why OCK wants to decouple the TNS segment and carve out the tower business, which provides a high Ebitda margin.

Currently, both the managed services business and tower business are parked under the same entity — OCK Sea Towers Pte Ltd — a Singapore-incorporated company.

Apart from being one of the largest towercos in Malaysia, OCK also has a presence in four countries in the region, namely Indonesia, Myanmar, Vietnam and the Philippines. It has about 5,300 towers across Malaysia, Vietnam and Myanmar.

However, despite the large number of tower assets, which gives the group long-term recurring income from the leases with mobile network operators, OCK’s share price had fallen 4.7% over the past year to close at 40.5 sen last Thursday, giving the company a market capitalisation of RM432.42 million.

The lacklustre share price performance is even more pronounced when looked at from a five-year horizon — last Thursday’s closing price was 43.8% lower than where it was five years ago. This is despite the group’s revenue increasing 35% and its net profit growing almost 13% during the period.

This is in stark contrast to the acquisition of Touch Mindscape Sdn Bhd, a towerco with about 1,000 towers in Malaysia, by edotco Malaysia Sdn Bhd back in November 2021. The latter acquired Touch Mindscape for RM1.7 billion in enterprise value.

Touch Mindscape, a unit of Touch Group Holdings, owns an 80% stake in Touch Matrix — a network facility provider that is linked to Pahang royalty — with the remaining 20% held by Yayasan Pahang.

Ooi points out that the way investors value the managed services business is also different from how they value the tower business. The former is valued on the basis of profit after tax (PAT), whereas the tower business is valued from the perspective of Ebitda.

“If you look at our tower assets, all the towers are under one company, which we incorporated in Singapore. We intend to carve the tower business out of the group and make it a separate unit reporting to a holding company,” says Ooi.

“So, the tower assets will be valued based on Ebitda, while the managed services will be valued based on PAT. Therefore, the managed services business will not be impacted by the high depreciation of the tower business, while investors will solely look at the towerco’s Ebitda.”

He is of the view that the Ebitda margin of its Vietnam tower business should be about 50%, while that of the Myanmar operation is between 60% and 70%. Meanwhile, the Ebitda margin of the Malaysian tower business, with about 600 towers, is between 30% and 40%.

The Myanmar tower business has an Ebitda of RM59 million, while the Vietnam tower business has an Ebitda of RM50 million, says Ooi. The Malaysian tower business has an Ebitda of RM31 million, out of a total Ebitda of RM140 million for the group’s towerco operations.

“We are looking to carve out the tower business, either through an initial public offering or divesting some of the assets. That will fetch more returns for shareholders,” he adds.

While Ooi concedes that OCK’s net profit margin has been deteriorating, he says this is due to the accounting treatment that requires the group to provide for the depreciation on its assets and high interest cost on loans.

He says the tower business’ profit was charged with RM100 million in depreciation charges for the financial year ended Dec 31, 2022 (FY2022). That is another reason to separate the tower business from the rest of the group.

“That [the huge depreciation] is the reason why you see there is a huge difference between our operating profit and profit after tax. We even have to provide for depreciation on the right of use of the sites that we have leased from landowners for the towers,” says Ooi.

“If you look at the group’s Ebitda margin of 30%, it remains healthy. We have an asset-based business, a services business and a maintenance business. For the asset-based business, we have raised a lot of debt, and the interest on loans that we paid last year was RM30 million.”

The PAT margin in FY2022 was 6.36%, which was the lowest in the last five years. The group is looking at ways to improve its internal costs and make its operations more efficient in order to improve its margins.

Ooi believes that one way for OCK to improve its margins is to take on comprehensive scope contracts with network operators, whereby the group takes over the maintenance operation, including all the staff and equipment, of the telecoms tower sites.

Through such contracts, the network operators will pay OCK to maintain their operations, while it is up to the group how it wants to manage the cost of the maintenance jobs. For example, if OCK is paid RM1 and it manages to keep the maintenance cost at 50 sen, then it gets a 50% margin.

“But if we can only maintain the sites at 90 sen, for example, then our margin will be only 10%. So, it depends on how we manage our costs, while for the network operators, they get a more thorough maintenance service at a more competitive cost compared to having it done in-house,” says Ooi.

He adds that recently, OCK won a contract to maintain 6,000 telecoms tower sites from a network operator. However, he declined to reveal the name of the network operator as the group had signed a non-disclosure agreement with the party.

OCK’s tower business reported good growth last year, especially the Malaysian operation, with its Ebitda increasing 60% year on year, says Ooi. The growth could be attributed to the rollout of the 5G network by Digital Nasional Bhd (DNB), he adds.

This year, OCK is projecting growth of a similar level, double-digit growth of its tower operations in the region. In 2022, the Ebitda of the Myanmar tower business grew 22% year on year, while that of the Vietnam operation increased 14%.

In Vietnam, OCK has identified another 800 towers to be acquired, which will bring the total number of telecoms towers in the country to about 4,300 by the end of this year. The acquisition cost will be between US$18 million and US$20 million, says Ooi. OCK is currently the largest independent tower owner in Vietnam.

Meanwhile, its Myanmar operation will see another 80 sites being built this year, he says. OCK owns 1,200 towers in Myanmar.

“Based on the indicative number of sites that we will build this year, we can expect the same level of growth this year. In Myanmar, no doubt it is still under military control, but we have 80 sites to build in our budget,” says Ooi.

OCK is also in the business of network infrastructure deployment contracting, with the group involved in building 4G and 5G network infrastructure, including fiberisation. To date, it has about RM380 million in its order book under this segment and Ooi is targeting 20% growth in orders.

With FY2022 being a record year for OCK, it would be more impressive if the group could chart another record year in the current financial year. Ooi is confident that the group can do it as the roll-out of the 5G network by DNB and the group’s expansion in the region continues.

One of the countries is Laos, where OCK announced in October 2022 that it had inked a shareholder agreement with the Laotian Ministry of Finance to set up a joint-venture company to provide telecoms network solutions in the country.

When asked why the group chose to venture into Laos for its tower business, instead of more mature and larger markets like the Philippines and Indonesia, Ooi says the two markets are where big private equity (PE) funds go to, not entrepreneur-driven groups like OCK.

“We need to understand our position, ability and capacity before we venture into another country. If you go to the Philippines, there are so many people offering to buy towers from the network operators, so the valuations are very high,” he points out.

“So OCK, being not a PE-backed company, we know where we stand. So, we go to a country where we see less competition to build our business. For example, when we went to Myanmar, we didn’t see many PE funds in the market. Then suddenly, a lot of them came, until the coup.”

Whether Laos will be another growth avenue for OCK remains to be seen. However, one thing is clear. Ooi is aware that the market seems to be undervaluing the group and is determined to prove the real value of its businesses.

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