OCK is one of  Malaysia’s  largest telecommunication network services providers of comprehensive end-to-end network services solutions. The jewel in  its  existing operation is its NFP licence, which allows  OCK to build,  own  and  rent  out  telecommunication  towers  and  rooftop transmission sites. The stock is Not Rated, with a MYR0.98 FV based on a 14x FY14 P/E, which implies a potential upside of more than 20%.

• Background.  OCK  principally  provides  telecommunications  network services  and is capable of  offering  a  full  range of  turnkey services to  all segments of the telecommunication services market.  It is  also  engaged in  the supply, installation and commissioning of green energy systems, focusing mainly on solar power generation.
• NFP  licence  the  trump  card.  OCK  holds  a  network  facility  provider (NFP)  licence  which  allows  it  to  build,  own,  and  rent  out telecommunication  towers  and  rooftop  transmission  sites.  We  believe this  would position the group to become one of the primary beneficiaries of  the  rollout  of  the  4G  mobile  network  in  Malaysia.  The  country’s telecommunication  industry  is  expected  to  incur  a  combined  capex  of MYR2.5bn-3bn in 2014,  with a  projected  10-15% annual growth  as the nation gradually migrates  to  the latest  4G mobile  technology standards. Based  on  management’s  guidance,  the  niche  market  in  which  OCK specialises has the potential to generate some MYR500m-600m worth of jobs up every year.
• To  benefit  from  Budget  2014.  In  Budget  2014,  the  Government announced that 1,000 telecommunication towers worth MYR1.5bn will be built  over  the  next  three  years.  As  a  holder  of  an  NFP  licence  with  a reasonably well-established track record, OCK stands a good chance of bagging some of these jobs.
• Not  Rated.  We are forecasting for OCK to achieve net earnings growth of 13-26% over FY13F-15F. The FY14 target P/E of 14x, which is a 25% discount  to  the  average  of  its  telecommunication  peers  is  justified, considering  its  relatively  smaller  earnings  base  We  derive  a  FV  of MYR0.98 for OCK. The stock is Not Rated.

Growing Taller
Background.  OCK  is  principally  involved  in  the  provision  of  telecommunications network services and has the capability to  provide a full  range of  turnkey services to all segments of the telecommunication services market.  Founded  in 2000,  the group is  now  one of the largest telecommunication network  services providers  in Malaysia.It counts major telecom service providers and equipment vendors as its customers .

Business model. OCK has four core operating segments, namely:
i.  Telecommunication services: OCK’s primary business segment in which the group caters to the telecommunications services market.  It has  expertise in all  six  segments  of  the  telecommunications  network  services  market, including  network planning, design and optimisation, network deployment, network  operations  and  maintenance,  energy  management,  infrastructure management, and other professional services.
ii.  Green  energy  and  power  solutions:  Started  in  2010,  the  group  is  also engaged  in  the  supply,  installation  and  commissioning  of  green  energy systems, focusing predominantly on solar power generation. On top of that, OCK  is  also  involved  in  the  supply,  installation,  commission,  and  testing services for the conventional power generation equipment.
iii.  Trading  of  telecommunication  and  network  products:  OCK  trades  in telecommunication  hardware  and  equipment  to  complement  its  primary telecommunication network services business.
iv.  Mechanical  and  engineering  (M&E)  services:  the  company  also  provides civil  and  M&E  works  by  preparing  sites  for  the  implementation  and integration of telecommunications network equipment.

NFP  licence  holder.  The jewel in OCK’s existing operations  is its  NFP licence  from Malaysian  Communications  And  Multimedia  Commission  (MCMC).  The  licence allows  OCK  to  build,  own,  and  rent  out  telecommunication  towers  and  rooftop transmission  sites. We believe  this  would position the group to be one of the primary beneficiaries  amidst  the  current  4G  mobile  network  rollout  in  Malaysia.  The Malaysian  telecommunication  industry  is  expected  to  incur  a  capex  rollout  of 
MYR2.5bn-3bn  in 2014 with an estimated  10-15% annual growth projection,  as the nation  as a  whole  gradually migrates  towards  the  latest  4G  mobile  communication technology standards.  Based on management’s guidance, the niche  market in  which OCK specialises, has some MYR500m-600m worth of jobs up for grabs every year. Capitalising  on  an  expanding  tower  network.  OCK  currently  has  150 telecommunication  sites  comprising  ground-based  towers  and  rooftop  structures. 
Management intends  to double that number in the next  two to three  years through organic  growth  and  potential  acquisitions.  Leasing  the  towers  to  the telecommunication  service  providers  in  Malaysia   generates  long-term  recurring income  for  the  group.  According  to  management,  each  telecommunication  service provider  pays  lease of  around MYR4-7k per month,  depending on the location and the type of the structure involved.

Benefitting  from  Budget  2014.  Budget  2014  proposed  to  build  1,000 telecommunication  towers  worth  MYR1.5bn  over  the  next  three  years.  We understand  that  this  will  be  funded  by  the  Universal  Service  Provider  (USP)  fund under  the  purview  of  MCMC.  As  a  holder  of  NFP  licence  with  a  reasonably  wellestablished industry track record,  we believe OCK stands a good chance of bagging some of these jobs.

Turning green.  Having recently ventured into the green energy industry, OCK  now owns a 1MW solar farm in Kelantan which is now on  stream and selling energy back to  the  national  grid.  The  group  was  also  recently  contracted  by  Malaysia  Airports Holdings Bhd (MAHB MK, BUY, FV:  MYR10.13) to build a 10MW solar farm at KLIA. To enlarge its footprint within the renewable energy segment,  OCK is looking to bid for more solar farm construction projects  from  the  Sustainable Energy Development 
Authority Malaysia (SEDA).

Regional expansion.  As part of its expansion strategy,  OCK, which has a presence in Cambodia and Myanmar, plans to strengthen its footprint in the Asean market. For instance,  its  Cambodia  unit  was  recently  awarded  two  main-frame  contracts  from Axiata Smart Cambodia for site constructions.  The group is  also working with ZTE Myanmar  for  equipment  installation,  testing  and  commissioning,  and  network optimisation.  It  is  also  currently  on  the  lookout  for  potential  job  opportunities  in Indonesia.

Earnings projection. We are forecasting for  OCK to achieve net earnings growth of 13-26% for FY13F-15F, with net earnings  ranging from  MYR14.9m-MYR23.4m over the  next  three  years.  This  will  be  predominantly  driven  by:  i)  higher  jobs  flow  in Malaysia amid  the  rollout of the country’s  4G mobile network,  ii) higher contribution from its overseas unit in tandem with the group’s move to penetrate into new Asean markets, and iii) steady income stream from its 1MW solar farm in Kelantan.

Valuation.  Pegging FY14 P/E of 14x which we deem fair, and  at  a  25% discount to the  average  of  OCK’s  telecommunication  peers  considering  its  relativel y  smaller earnings base, we derive a FV of MYR0.98 for OCK. The stock is Not Rated.

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SWOT Analysis

• One of the largest telecommunication network services providers in Malaysia

Company Profile
OCK is one of the largest telecommunication service providers in Malaysia.

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Source: RHB