UOB Kay Hian starts coverage of OCK with fair value of RM1.30
KUALA LUMPUR: UOB Kay Hian Malaysia Research has initiated coverage of OCK Group with a sum-of-parts derived fair value of 95 sen while its blue-sky scenario points toward a fair value of RM1.30 a share.
It said on Tuesday OCK is an experienced network service provider poised to grow tower assets in frontier markets.
"We project a three-year core earnings CAGR of 16.5% over 2015-18 driven by stable rents from 920 towers in Myanmar.
"Importantly, we see deep value in the stock as rising tenancy ratio will provide scope for meaningful earnings upside. Our blue-sky scenario points toward a fair value of RM1.30 a share (upside of 57% from current share price)," it said.
UOB Kay Hian said OCK is poised to grow long-term recurring earnings via the commercial operations of 920 telco towers (capex is US$75mil or RM310mil) in Myanmar.
It expects maiden full-year rental income of approximately US$15mil or RM62mil in 2017. We estimate the Myanmar towers (or Myanmar tower-co) will help drive a three-year core earnings CAGR of 16.5% over 2015-18.
The research house said importantly, additional site expansion and rising tenancy per tower will provide scope for significant earnings upside.
Higher tenancy ratio (from one time to 1.15 times), taken together with stable rentals could further lift its base-case earnings projection by 26% and 41% for 2017 and 2018 respectively.
This translates to a blue-sky three-year earnings compounded annual growth rate of 31% (vs base-case of 16.5%).
UPB Kay Hian Research said OCK plans to place out 105m new shares to a strategic shareholder. The proceeds to be raised from the private placement (of approximately RM86mIL, based on current share price) could be channelled towards the acquisition of brownfield tower assets within the Indochina region.
"Based on our conjecture, a tower asset acquisition of eight to nine times EV/EBITDA will likely be value accretive, as the stock currently trades at 11 times forward EV/EBITDA.
"We value Myanmar tower-co on a discounted cashflow method, to capture stable cashflow amid stable rental outlook. We have factored in up to 3,000 sites by 2020 in DCF-valuation for Myanmar tower-co. Our target price implies a 20% upside from the current share price level. At our target price, the stock would trade at 12.6/10.9 times 2017/18F EV/EBITDA. We are positive on the stock given strong earnings growth outlook, and believe the company deserves premium valuations.
"Near-term key re-rating catalysts for the stock include: a) sizeable M&A of tower asset within Indochina, including Vietnam, b) additional tenant for Myanmar tower-co, and c) eventual listing of a sizeable tower-based assets," it said.
Source: The Star 21 June 2016
We initiate coverage on OCK Group Bhd (OCK) with a BUY recommendation and a target price of RM1.00. We like OCK for its strong growth prospects from its ongoing business expansion, both domestically and overseas, that will also provide long-term regenerative earnings. Our call is also premised on the group's position as the largest telecommunication service provider in Malaysia.
OCK has a good business mix as both its mechanical & electrical engineering services and trading segments complements its core telecommunication network services segment, creating a synergy to its overall business model. Meanwhile, its green business and power solutions segment offers stable recurring income.
The group is currently on a regional expansion phase through its relatively large scale venture into Indonesia and its long-term investment in Myanmar. Going forward, earnings growth will emanate from its Myanmar venture which will see additional income from the construction and leasing of 920 telecommunication towers by end-2016. Meanwhile, both the Malaysian and Indonesia businesses will focus on increasing the ownerships of telecommunication tower sites.
We expect OCK to register double digit three-year net profit and revenue CAGRs of 13.3% and 21.8% to reach RM31.7 mln and RM468.5 mln respectively by 2017. We arrive at our target price by ascribing a sum-of-parts (SOP) approach as we value its telecommunication network services and green energy & power solutions business segments with a discounted cash flow approach (WACC: 9.0%, Terminal Growth: 1.5%); whereas we ascribe a fully-diluted 15.0x PER to both its 2017 trading and mechanical & electrical engineering services businesses.
Source: Malacca Securities