Wednesday, May 14, 2014

RHB’s 2014 Top 30 Malaysia Small Cap Companies – OCK

RHB’s 2014 Top 30 Malaysia Small Cap Companies – OCK
We recently launched RHB’s 2014 edition of the Top Malaysia Small Cap Companies handbook, which featured OCK as one of our Top 5 picks. Group COO David Low delivered a corporate presentation to over 100 institutional investors at the book launch event. Together with Managing Director Sam Ooi, the team also met 30 investors during the breakout sessions organised as part of the full day event.

Some of the key highlights from the sessions are as follows:
 Investors found management to be fairly grounded and were comforted by OCK’s track record. The group now has about 240 telco sites and plans to increase this to about 300 by year-end to enhance its recurring income stream.


 The tender exercise for the 400 telco sites (first phase of the 1,000 sites to be rolled out in rural and underserved areas under the 2014 Budget) closed recently. We gather that over 100 submissions but only 10 would eventually be selected. The outcome from the bidding exercise should be known by June. Being a Tier-1 player in providing telco network services, which include the construction of towers for both U Mobile SB and Packet One Networks (M) SB, OCK is one of the leading contenders for the Universal Service Provisioning (USP) allocated project.

 OCK recently inked a deal with Maxis for the maintenance of 4,000 sites. While site maintenance offers lower revenue per telco compared to a tower leasing model, management believes there is a sizeable market for site maintenance. This is on operators seeking to improve their cost efficiencies amid stiffer competition by outsourcing the maintenance of networks. Beyond Malaysia, management believes there are also opportunities in Indonesia to provide such services.

 To further enhance its recurring income, OCK hopes to grow its RE business. It already has a track record in building solar power plants with a maiden 1 megawatt (MW) plant in Kelantan. Over the medium to long term, OCK is targeting to generate 30MW worth of solar energy.

 Management has in place a MYR150m sukuk facility, with only MYR4m drawn down so far. This implies that the group has the funds in place to carry out its expansion plans.

Recent development
 On 29 April, OCK announced that it was acquiring an 85% stake in PMT for MYR21.2m to be settled via a combination of MYR10m cash and MYR11.25m in new OCK shares, ie 10,227,272 new shares at an issue price of MYR1.10 each. The remaining 15% stake in PMT will continue to be held by its two founders, Song Chin Chew and Lim Hooi Seeh.

 PMT is mainly involved in maintaining telco sites in Indonesia and has 7,000 under its portfolio. This is a small fraction compared to the estimated 140,000 sites in Indonesia. It is expected to grow further due to the rapid 3G rollout expansion. We note however that 90% of PMT’s FY13 revenue was derived from two of its major customers, which poses a dependency risk.

 We are positive on the M&A as the acquisition should provide OCK a small foothold in the fast-growing Indonesian tower market. Note, however, that PMT is mainly involved in the maintenance of telco sites, and not the building of telecom towers. The business of building and leasing such towers has been closed to foreign ownership since 2008, as a means to support and create more local entrepreneurs. The telecom tower business must be wholly-owned by locals, with the exception of the listed entities such as Tower Bersama (TBIG IJ, BUY, TP: IDR7,250) and Sarana Menara (TOWR IJ, BUY, TP: IDR3,950).

 The acquisition is earnings accretive. PMT’s FY13 net profit stood at MYR2m, versus OCK’s MYR12.9m in FY13. We gather that PMT could potentially generate significantly more earnings as more service contracts are secured.


Source/Extract/Excerpts/来源/转贴/摘录: RHB-Research,
Publish date: 07/05/14

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