We initiate a review on OCK Group with a non-rated rating
and a target price of RM0.42, based on a targeted FY13 PER of 8.0x in tandem
with FTSE Bursa Malaysia small capital index forward PER. OCK Group (“OCK”) is
principally involved in the provision of telecommunications network services,
of which the Malaysia market is the group's principal market. The group has
recently been granted a 5-year NFP license from MCMC, which allows it to build
and own telecommunications towers. This could further strengthen the group’s
recurring income source, which currently mainly dependent on maintenance income
generated from its telecommunications network services segment. The group’s competitive
strengths are 1) a full range of turnkey solution provider for
telecommunications network services; 2) its established market reputation and
3) its strong relationship with technology providers.
One-stop turnkey
solution provider for telecommunications network services. OCK provides a
full range of turnkey solutions for telecommunication network services ranging
from network planning, design and optimisation to energy management as well as
infrastructure management. With these comprehensive end-to-end solutions
coupled with its vast expertise in the latest technology knowledge, the group
is able to act as a one-stop-centre for telecommunication operators in its
efforts to expand, upgrade, consolidate or manage their network
infrastructures.
Rising recurring
income via owning telecommunications infrastructure. The group’s current
recurring income is mainly derived from providing maintenance works. With the
recent award of its 5-year NFP licence from MCMC, OCK plans to venture into
being a telecommunication infrastructure owner by building/buying and managing
telecommunication towers. Management believes tower operations could further strengthen
its recurring income while at the same time yield it other additional revenue streams
such as the sale of replacement equipments and maintenance packages. We
understand that OCK has allocated RM9.9m (or 36.7%) from its IPO proceeds for
this purpose and is targeting to build and own 40 telecommunication towers in
the next one year and subsequently 50 towers for each year thereafter up to the
next five years.
Expecting net profit
to hit RM10.7m (+25.5% YoY) and RM13.6m (+26.8% YoY) in FY12 and FY13
respectively. We expect the group’s FY12-FY13 turnover to be at RM107.3m
(+21.5% YoY) and 136.8m (+27.4% YoY) respectively. Our assumptions are based on
1) a 15% p.a. growth in its core businesses and 2) telecommunication tower
revenue contributions of RM2.9m in FY12 and RM6.5m in FY13 on the assumption that
40 and 50 towers will be built in these two financial years coupled with a
monthly rental fee of RM6k per site. Margin-wise, we expect the group to be
able to sustain its gross profit margin at around 26% but it may face some
pressure at the PBT level due to escalating depreciation and administrative
costs.
Source: Kenanga
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