3. OCK Group Berhad

Figure 1: OCK Group Berhad

OCK Group was established in year 2000 and is headquartered in Shah Alam, Malaysia. In 2012, OCK Group was listed on the ACE Market of Bursa Malaysia on the 17^th July and was being transferred to MAIN Market in year 2014.

Figure 2: Four Core Businesses of OCK Group Berhad

OCK Group Corporate Structure

Figure 3: OCK Corporate Structure

Telecommunication Network Services (TNS)

As a Network Facilities Provider (NFP) Licensee, OCK Group is able to build, own and rent telecommunication towers and rooftop structures to the 8 telecommunication operators in Malaysia.  This is the core business for OCK Group that makes its business growing fast. OCK Group is the leading company to supply for telco network services in Malaysia. Below is the clients list for OCK:

Figure 4: OCK Malaysia Client List

Besides building towers in Malaysia, OCK Group also expands their footprint in telecommunication services in Cambodia (OCK Phnom Penh Pte Ltd), Myanmar (OCK Yangon Pte Ltd), Indonesia (PT Putra Mulia Telecommunication), China (Fuzhou1-Net Solution Co Ltd) and Vietnam (SEATH) after acquiring SEATH.

Tenancy Ratios

In the investment on the telecommunication towers company, tenancy ratios of the towers are the key value driver. Tenancy ratio is the number of tenants per tower. It means that with the same number of towers, if the company can attract more tenants which are the telecommunication operators, it can increase its recurring income without incurring extra capital cost, thus improving its profit margin at the same time.

Tenancy ratio refers to the number of tenants (operators) who have put up their antennae and other active infrastructure on the towers. The more the number of tenants, the higher the rent and hence, the shorter the payback period for the telecom tower company.

Figure 5: Tenancy Ratio Reference

Green Technology and Solar

Figure 6: OCK Solar Farm

OCK has ventured renewable green energy by building the solar farm. Up to date, OCK operates 9 solar farms with a total energy output of 5.3MW. Besides, OCK has successfully completed building a 10MW solar farm located in Sepang. This is one of the core businesses that Mr. Ooi emphasizes in OCK recurring income business model.

Figure 7: Press Reader News

Trading of Telco & IT Products

OCK also supplies antennas, feeder cables, connectors and water-proofing tapes. It also customizes metal structure for cable ladders, boom, heat exchanger or air cooled outdoor cabinet. Currently, OCK is Rosenberger RF, optical and structure cable products distributor in Malaysia.

M&E Engineering Services

OCK also provides civil and M&E services to hospitals, commercial and residential high rise buildings, factory, airport and hotel. Its M&E services mostly on electrical services, air-conditioning and mechanical ventilation systems and fire fighting protection system.

Revenue Analysis

Figure 8: OCK Revenue from 2012 to 2016

Figure 9: OCK Segment Revenue

OCK has been showing consistent growth in its revenue and PAT over the years with average 47% and 29% growth in the past few years. As in the above figures, the biggest revenue contributor to OCK is from Telecommunication Network Services (TNS) which is around 80%. To order to have significant increase in OCK revenue, OCK must perform in its TNS sector.

Figure 10: OCK Geographical Revenue

From the latest annual report 2016, all regional businesses of OCK including Malaysia are showing growth, especially in Malaysia with growth of 22%.

From the revenue according to segments, OCK is showing significant growth in TNS and lease of telecommunication towers due to new recurring revenue from Myanmar after delivering 608 towers to Telenor.

OCK Future Prospects

Malaysia

Figure 11: The Star News August 2016

Currently OCK has 144 towers in Malaysia. According to MD of OCK, OCK has orderbook of 350 new sites and by end of 2016, another 130 new towers will be ready. It means that the recurring revenue for OCK in Malaysia is keep increasing in long term.

Myanmar

In December 2015, OCK partnering with King Royal Technologies (KRT), signed agreement with Telenor Myanmar to construct 920 sites under a build and lease model. This means that it will provide long term recurring income to OCK for the telecommunication tower rental. OCK plans to build 3000 towers over a five year period until 2020 at Myanmar.

Figure 12: Myanmar Tower Numbers

In Myanmar, OCK has successfully delivered 608 towers to Telenor as at March 2017 and 920 towers at the end of 2017 to Telenor. This means that by this year, OCK will have another source of recurring revenue from Myanmar. Telenor has built 6,900 sites across Myanmar, and it might need to build another 9,000 sites in order to deliver solid nationwide and data coverage. Here comes the potential of the collaboration between OCK and Telenor in long term relationship after the first 920 towers contract. OCK aims to build 3,000 towers at the end of 2020 in Myanmar.

Vietnam

Figure 13: SEATH Acquisition

OCK Group completed the acquisition of SEATH Vietnam at the end of 2016. SEATH Vietnam is one of the largest telecommunication network provider with 1968 towers (latest number of tower). Vietnam is one of the largest telecommunication growing market in ASEAN.

Figure 14: SEATH Information

Vietnam is at a relatively early stage of its development as an independent towerco market. It is at early stage 3G environment with smartphone penetration at 25% in year 2016. SEATH is one of the biggest telecommunication towers company in Vietnam. OCK has very huge potential to expand their footprint here.

According to Global Mobile Economy Report 2015, telecommunication operators have been heavily investing in infrastructure over the last three years to fully support the mobile broadband network deployment and that they are expected to spend US$1.4 trillion on capital expenditure up to year 2020 for 4F LTE and fibre optic to meet customer demand.

Indonesia

Acquisition of PT Putra Mulia Telecommunication (PMT) in 2014 has provided OCK with rapid expansion into Indonesia. PMT is now managing 20,000 sites as on 31^st December 2015. This provides the recurring income for OCK Group for managing the existing sites. And PMT is now still expanding. At Indonesia, there are total of 120K tower. So, PMT still has potential to increase the total number of towers under its managed service.

Figure 15: TNS potential at India and Indonesia

According to Moody’s, Indonesia tower operators is expected to have year-on-year revenue growth of about 8-10% in next one to two years. The acquisition of PT Putra Mulia Telecommunication (PMT) by OCK Group provides the huge potential growth for its revenue.

Expected additional revenue from acquisition of SEATH

Figure 16: SEATH Financial Report

According to the financial report of SEATH, the PAT for first four months of SEATH in year 2016 was RM 2.706 million. We can estimate that in first quarter, the average PAT per month is RM 0.6765 million. Let us make a rough estimation that there is at least RM 2.03 million PAT in SEATH in first quarter. With 60% stake in OCK Vietnam, it means that there will be around RM1.22 million to be shown in the OCK 1^st quarter report in coming May 2017.

Figure 17: OCK Quarter PAT

Figure 18: OCK Quarter PAT Table

In the 1^st quarter of OCK in year 2016, PAT of OCK was RM 4.536 million.

With the assumption:

•       RM 1.22 million by SEATH to be included into the 1Q of OCK
•       OCK 1Q PAT maintained at RM 4.536 million in other regions

Estimation 1Q PAT will be at least RM 5.756 million with growth of 27% breaking the new high in its profit in 1Q. This has not included the growth in its own regional area for telecommunication towers and other core businesses of OCK.

Stock Valuation

Figure 19: Historical PE Ratio of OCK

The average historical PE of OCK is at 21.44. Diluted EPS at 2016 is 3.15 sen. With the acquisition of SEATH and TNS sector growth regionally, we assume that OCK PAT growth in 2017 can be can be maintained at average of 29% with reference to the last few years, the forward EPS in 2017, 2018 and 2018 is 4.10, 5.32 and 6.90.

In OCK forward PE, we can use PEG ratio (price/earnings to growth ratio). It is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate. As OCK growth is average at 29% in PAT, we can expect the highest forward PE of OCK is 29 for PEG = 1.

Financial Year	Forward EPS	Stock Price (Average PE = 21.44)	Stock Price (PEG=1; PE = 29)
2017	4.10	0.88	1.19
2018	5.32	1.14	1.54
2019	6.90	1.48	2.00

If OCK growth is maintained at 29% in PAT, OCK stock price should be in the range of RM0.88 to RM1.19. If SEATH contribution is higher, with the greater growth in Malaysia TNS market, we can re-evaluate OCK stock price. Q1 report will be very good to know about SEATH contribution.

Conclusions

OCK Group is very focusing to expand their footprint regionally as they have put their marks in China, Indonesia, Vietnam, Myanmar, Singapore through acquisition and cooperation with the local telecommunication company.

The future of OCK is mainly depending on the growth in the telecommunication area. As the number of smartphone users worldwide is growing rapidly, it means that Telco companies need to upgrade their TNS to support their users in terms of mobile data usage. This will support OCK growth in the near future. As mentioned above, OCK has new order book of 300 sites in year 2016 in Malaysia. Riding on the wave of demand of faster speed, Malaysia's MNOs will deploy a total CAPEX of RM 3.2 billion in year 2017. 

Another main point of OCK is that OCK is always focusing on the recurring income for its revenue. Once the towers built up is getting more and more, this income for OCK will be its stable source of income as its build and lease model.

*Disclaimer: Please do your own homework before investing in OCK. This research writing is not buy or sell call.