• Keep BUY and MYR0.82 SOP TP (40% upside), c.2% yield. We remain upbeat on OCK Group’s earnings prospects. The latest contracts in the data centre (DC) space underscore its ability to drive strategic revenues on the back of its end-to-end infrastructure and connectivity offerings. We see latent value for its recurring towerco business with a potential carve- out/spin-off in the longer term. The stock trades at undemanding FY25F EV/EBITDA of <5x, supported by a 3-year core earnings CAGR of 19%. Our TP includes a 2% ESG premium.

• More DC jobs. OCK has secured three back-up power solutions contracts valued at MYR32.5m. The projects involve the supply, delivery, installation, testing, and commissioning of underground storage tanks and fuel distribution systems, including cabling works for DC backup power system solutions. We estimate a 2-3% impact on FY25 earnings, based on a 7-8% net margin. The system aims to provide a critical energy lifeline for backup generators during unscheduled power disruptions by ensuring consistent fuel supply, which is crucial for DCs to maintain uninterrupted operations.

• DC outstanding orderbook >MYR50m; group tenderbook >MYR500m. The latest wins bring OCK’s outstanding DC power solution jobs to over MYR50m (including projects for two key DCs in Iskandar Puteri). While the amount is modest relative to the value of main DC construction/fabrication jobs, it is a testament of the group’s ability to secure and execute strategic power solution projects. We see the group benefitting from higher approved investments in Malaysia’s DC space, which is expected to hit a new record in 2024, thanks to massive investments by hyperscalers to set up cloud regions. We do not rule out other ancillary DC-type projects (such as fibre backhaul/connectivity) being secured, being complementary DC connectivity services. OCK is currently tendering for multiple projects within the telco network services (TNS) and digital segments, valued at over MYR500m. The current outstanding orderbook (c.MYR200m) comprises largely of TNS jobs, a Ministry of Education contract, and non-TNS jobs.

• Upside from digital ventures. Management believes the newly created digital arm (OCK Digital) could deliver triple-digit revenues over the next two financial years, with a MYR300-400m tenderbook on hand. This comprises largely of government and enterprise-related jobs. We see the group's end- to-end capabilities (from infrastructure deployment to connectivity solutions) and execution track record as a key differentiator, allowing customers access to a one-stop shop to meet their digital aspirations.

• Key risks: Delays in project execution, weaker-than-expected earnings, and regulatory setbacks.

Source: RHB Research - 20 Aug 2024