Despite the slowdown in orders from the first 5G network, OCK GROUP BHD targets to replenish its telecommunication network services (TNS) order book via various strategic collaborations, including with U Mobile. It is also eyeing new JENDELA Phase 2 contracts, as tenders are expected to open by 2025. We maintain our forecasts, TP of RM0.43 and MARKET PERFORM call.

We came away from OCK GROUP BHD's post-results briefing feeling reserved about its current outlook, but optimistic on future prospects. The key takeaways are as follows:

1. Despite the ongoing slowdown in deployment of the first 5G network, OCK GROUP BHD is optimistic of replenishing its TNS orderbook which currently amounts to RM125m. This is via various strategic collaborations with the following: (i) U Mobile: deployment of the second 5G network, (ii) Melaka state: long-term partnership for underground infrastructure for cabling and fiber, and (iii) key real estate developers: open fiber access in new high-rise developments. Additionally, OCK GROUP BHD plans to partner with U Mobile in the near term to upgrade its existing portfolio of 10,000 4G sites to 5G. There may also be opportunities for OCK GROUP BHD to assist U Mobile in implementing a number of new sites to complete its 5G network loop.
2. OCK GROUP BHD anticipates that the upcoming tender for JENDELA Phase 2 contracts, expected by 2025, will provide opportunities to replenish its TNS order book. According to Communications Minister Fahmi Fadzil, a total of 2,700 locations nationwide have been identified for Phase 2.
3. OCK GROUP BHD's tender pipeline currently amounts to RM960m while its order book stands at RM370m. We understand that a large chunk of its outstanding orders emanates from the TNS segment (c. RM160m), consisting of contracts awarded by mobile network operators. This does not include fiberization work for data centers (DC) that are parked under the TNS segment amounting to RM30m. Meanwhile, power solutions contracts for DC sparked under the M&E Engineering segment amount to RM73m.
4. OCK GROUP BHD has entered into key partnerships to expand its green energy business. This is to pioneer the supply of electric construction vehicles and its supporting ecosystem. To-date OCK GROUP BHD has secured an order book of RM3m in 4QFY24 for these projects.

Forecasts. Maintained.

Valuations. We also keep our TP of RM0.43 based on unchanged 5.7x FY25F EV/EBITDA. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us. Maintain MARKET PERFORM.

Investment case. OCK GROUP BHD's near-term earnings may benefit from potential new contracts in these areas such as: (i) power solutions for DCs, (ii) new digital business (solutions for cloud, smart cities, connectivity and managed solutions), and (iii) 5G network roll-outs at Laos (new venture), Vietnam and potentially Indonesia soon.

However, OCK GROUP BHD's core TNS business continues to face headwinds, with sluggish order book replenishment and declining outstanding orders as the first 5G network nears completion. While the recent award of the second 5G network (NW2) to U Mobile is a positive development, the roll-out may encounter delays. U Mobile must first finalize additional mobile network operator (MNO) partnerships, appoint a 5G Advanced technology vendor, and secure financing, among other preparatory steps. Moreover, the unveiling of the official 5G dual network policy will be crucial to clarify NW2's coverage targets and access arrangements with other MNOs.

Risks to our call include: (i) unfavorable regulatory changes, (ii) prolonged delay in roll-out of second 5G network and JENDELA Phase 2, and (iii) country and political risks at frontier markets where OCK GROUP BHD has a presence.

Source: Kenanga Research - 2 Dec 2024