• Maintain BUY and MYR0.78 SOP-derived TP (73% upside), c.2% yield. 3Q/9M24 results underwhelmed, largely on account of the soft patch in the contracting business. We see stronger 4Q billings on seasonality while earnings should stage a stronger rebound in FY25, supported by an expanding outstanding orderbook of >MYR300m. Share price weakness looks to be a good opportunity to accumulate.

• Falling short. 3Q24 core earnings of MYR7.3m (-46% QoQ, -29% YoY) brought 9M24 core earnings to MYR30.8m (+5.4%), at 61% of our full-year forecast (consensus: 72%). Relative to our forecast, the key deviation came from a larger-than-expected pullback in the site contracting/engineering business (YTD: -46%) with overall revenue down 12% YTD. EBITDA fell 11% QoQ with a 4% ppt sequential decline in margins. Our forecasts are under review pending the results call today.

• Contracting momentum to pick up in 2025 with second 5G network deployment, JENDELA Phase 2 (JP2). Telco network services (TNS) revenue fell 14% YoY in 9M24. The soft patch in the contracting business is not unexpected given the protracted developments in the second 5G network and delays in JP1. On a positive note, we see OCK as a key beneficiary of U Mobile’s 5G deployment as the company previously undertook the latter’s 4G site expansion and modernisation works together with ZTE. The impending launch of JP2 with 2,500-3,000 additional sites targeted will add to the group’s outstanding orderbook, which stands at over MYR300m.

• Bigger strides in data centre (DC) space. The group recently bagged a MYR30m fibre connectivity job for a hyperscaler which is constructing its facility in Nilai. The latest project adds to multiple DC contracts secured over the past 6-12 months (mainly ancillary power back-up solutions) from new co-location and hyperscale DCs. Management remains upbeat on DC pipelines with a current orderbook of MYR105m.

• Digital business to drive new earnings leg-up in medium to longer-term. Digital project tenderbook (c. MYR700m) makes up the lion’s share of project tenders with the focus on public transportation and healthcare segments. For 9M24, revenue from digital projects totalled MYR6m (c.2% of group revenue), driven by the MYR49m Ministry of Education contract to supply notebooks for schools in Sarawak. Management previously outlined a stronger focus on various digital projects at the state level, involving multiple government agencies where it can fully capitalise on its expertise in infrastructure deployment and connectivity to drive value and synergies.

• Risks: Weaker-than-expected earnings/margins, further delays in project execution deliverables, and higher-than-expected capex.

Source: RHB Securities Research - 29 Nov 2024