OCK has entered into a 15-year build-and-lease tower agreement with Best Telecom Co. Ltd. This is the Group’s maiden foray into Laos, which plans to roll out 5G services by year-end. We are positive on OCK’s success in penetrating this emerging market with robust growth prospects. We maintain our forecasts, TP of RM0.80 and OUTPERFORM call.

Starting off with several clusters at Ventiane. Best Telecom was recently awarded the 5G spectrum in Laos and is actively planning to launch its nationwide 5G network by end-2023. To kick start the deployment, OCK was awarded with several site clusters located within the metropolitan area of Vientiane and a few major cities. The group believes that it is able to replicate its success in Vietnam in Laos given similarities between both markets.

Given that this agreement is still at the preliminary stage, we understand that the actual number of tower sites to be deployed have not been finalized. This is given the need to conduct site surveys and feasibility studies prior to actual roll-out.

Expanding its ASEAN footprint.We are positive on OCK’s success in penetrating this emerging market with robust growth prospects. This will add to the group’s target to expand its tower portfolio in various markets, including Malaysia (150-200 towers) and Vietnam (c.500 towers). We also believe there is minimal counter party risk as we understand that Laos’ Ministry of Finance is one of the key shareholders in Best Telecom.

Forecasts. Maintained pending finalization of salient agreement terms.

Valuations.We also keep our TP of RM0.80 based on 7x FY24F EV/EBITDA. This is at a discount to our valuation of 8x ascribed to AXIATA’s towerco (Edotco), to reflect OCK’s relatively smaller size. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 3).

Investment case. We continue to be optimistic on OCK given that: (i) it is a strong contender for JENDELA Phase 2 and 5G roll-out projects in ASEAN, (ii) it has strong earnings visibility as 57% of its top line emanates from recurring income derived mainly from telco tower leasing and network management contracts, and (iii) earnings may receive a boost from new power management contracts for data centers. Maintain OUTPERFORM.

Risks to our call include: (i) unfavourable regulatory changes, (ii) D delayed roll-out of 5G infrastructure, and (iii) country and political B risks at frontier markets where OCK operates. 

Source: Kenanga Research - 8 May 2024