OCK tower will increase about 20% from 4200 towers to >5000 towers for FYE20. On top of that, solar farm also will contribute this year from acquisition worth RM40m. OCK also busy implementing phase one of NFCP.

Recurring profits will have double digit growth, any negative reaction to the share price will be an opportunity for investors to accumulate as the rights at 20 sen or >50% discount will entice investors to buy more shares as the fundamentals of OCK is improving and less effected from its towers and solar with >10-20 years concession.

Please refer to Dayang’s article by KYY “Dayang’s right issues enticed Investors to buy more shares”. Dayang did a similar 1:10 Rights issue and share price doubled.

Depends from which perspective we look at (they can only raise RM19.8m realistically based on minimum scenario)

1)OCK is paying 12% interest in Indonesia and about 8% for local OD. Interest cost saving of about RM1.0m for the long run.

2)Benefit to shareholders 1:10 Rights with free warrant (shareholders getting the new rights at 65% discount of current price and free warrants, if you buy today say 56 sen x 1000 = RM560 you only need to pick up 100 of rights @ 20sen free warrants = you pay on RM20/- you get free warrant) Your average cost = 52.7 sen free warrants - you get a company which better capitalised and reduce gearing.

3) The underlying fact is they are raising only RM19.8m, as it is unlikely they can raise RM24.4m because it assumed all the existing 264m warrant holders will convert into shares at exercise price 71sen and that itself will bring in to the company RM185m.

4) The rationale is stated in the proposal. However, I can only speculate the underlying reason they are doing the RI, I can only speculate the are rewarding their employees with 15% ESOS when share price is low. Normally ESOS is granted 20% each year for 5 years to retain employees.

5) Frankly, don’t you agree the amount raised is rather insignificant RM19m? But don’t forget, their Indonesia loan is 12% . If you use RM10m to repay, it is saving the company RM1.2m each year for long term.

Changing government seems to be the trends recently for Malaysia. Not sure if it is correlated with the foreign funds leaving.

1) Discount as stated in the announced proposal and fixed by Bursa
2) Normally 3-6 months
3) All government projects in all sectors are delayed when you have change in government. Some are more serious than others. OCK has >50% recurring biz, 5G is a bonus.

1) max discount for WB Exercise Price is 25%
2) max discount for ESOS Exercise Price is 10%
Assume WVAP 53sen, the Exercise Price 40sen (for WB) and 48sen (for ESOS).

@leoleo, agree. ESOS also need money to convert. I may be wrong, new ESOS is not as attractive as old ones. Old ESOS is given free to employees, of course it’s taxable. (Example, one construction company issue ESOS to staff at 86 sen, everyone is worry about the dilution, some lucky ones convert the quickly and sold it at RM1.30, however, only allow to convert 20% each year, unfortunately, when come the second year, the share price came below 86sen, the rest is history)

@leoleo86, they will only increase 10% based on rights issue of 1:10, if warrant WB convert, another 10%. So, total shares increase from 959m 96m = 1.055b.

Likely they can only raise RM19.8m, based on minimum case. Very insignificant.

Or could it be cheaper funding than strategic partner?

Looks like spin off not happening soon. Anticipating NFCP? 1:10 Rights can raise small sum only. Not sure why they want to do it. Must be something coming.

Agree. If they don’t spin off towerco, they may need rights issue. Towerco is capital intensive, Tower and Solar farm assets about RM600m, net debt of RM390m is not high. Those who are not familiar with towerco biz will perceived it as high. No choice, there is no comparison in Malaysia. If we look at Indonesia towerco, it can go as high as 2-3 times shareholders fund. All term loans is ringed fence for towerco.

The first contract from NFCP is indirect. Coming phase, they may tender direct. When they spin off towerco, they do not need rights issue. Anyway, they still can gear up higher if they want.

MD = Sam Ooi, CFO = Anthony, Big things coming - NFCP contracts tower growth

@MissTan their excess fund will be mostly used for tower and solar farm expansion.

Share buy back is approved and will be done only if they can collect substantial funds from its debt or improved cash flow. If they can do it, now is a good time.

E-AGM is interesting. Management said it is an exciting year 2020 because they will attained 5,000 towers or more and solar pv (11MW) will start contributing. More importantly, management said they benefited on the Phase 1 of the RM21.6b NFCP and expect to benefit from remaining Phases. (MD said strategic partner is WIP).

Slvest owns 1MW (if I am not mistaken) and also do EPCC for solar. Market cap of Slvest is RM609m vs OCK only RM537m with 11MW (also can do EPCC for solar) + 4,200 telco towers. Slvest has good operators.

OCK gearing is reduced (as some investors are worry about its gearing)

1) With the increase in cash position of 73.9% due to the completion of the private placement exercise in October 2019, our net gearing ratio improved to 0.68 times from FYE2018’s 0.95 times. (source: Page 27 of AR 2019)

2) Strong operating cash flow (before working capital) of RM142m for FYE19 is also reassuring (as compared with RM99m for FYE18)

Wow, EPF has lots of funds, keep buying OCK. Another 1.4m shares. Record purchase for June, 5.0 million shares.

1) EPF has a long term view of the company (although occasionally they do trade a bit). From 1-19 June, EPF has bought about 3.6m, increasing its shareholding from 61.0m to 64.6m (or 6.74%).

2) EPF is experience in towerco via 15% ownership in Axiata (which control edotco). Retailers is less patient compare with institutional investors.

3) EPF knows that OCK is the prime beneficiary of the RM21.6b NFCP over the next 5 years. OCK was awarded RM70m of NFCP contract for the Phase 1. Estimated towerco alone is about RM600 - 800m.

Timing for share buy-back now just right prior to spin-off listing of towerco biz, that can unlock 30-50 sen per share. Upside is about 30-50 sen.

1) EPF bought on April, May and June (to-date) = 3.7m, 0.45m and 2.4m = 6.5m.

2) OCK is the only towerco biz listed in Malaysia and its towerco is "undervalued" & "not reflected" in the share share price as not many investors are familiar with valuation of "towerco biz" where the market uses EBITDA multiple method (10x for small size)

3) Although selling portion of towerco to strategic partner only validate the "undervaluation", it also perceived as "unlocking the value" to investors/analysts.

4) However, if you look at it deeper, OCK's towerco biz may not require a strategic partner, as the biz model allow towerco (ring fenced) to gear up as high as 3-4x its capital. Hence, OCK has the capability to further gear up to expand, and can even get cheaper funding versus the strategic partner route.

5) OCK Group (not the tower) has high debt partly due to its own ownership of solar pv of 11MW and also comes from "trading" and "contracting biz" which is common in this type of biz. More importantly OCK has strong EBITDA (growing) from RM60m (2016 ) to about RM140m (2019).

6) A quick reference to Solusi Tunas Pratama (listed in Jakarta exchange) will see OCK's towerco biz model and its undervaluation. Need not wait for strategic partner if debt financing is cheaper and less conditions (unless going for lPO)

Yes, very old news. The point is OCK has strong partner to implement the projects. Government projects, normally very slow (red tapes).

Yes, especially the infrastructure for NFCP (RM21.6b). OCK also partner with China's CITC/China Unicom (world 4th largest telco in the world) to build smart city for Penang.

https://themalaysianreserve.com/2019/11/29/ock-partners-china-firm-in-telecommunication-and-tech-services/

Solar estimate value (for OCK) based on Slvest PE is RM400m. It is doubtful OCK may have Slvest prospects, perhaps, PE of 20x x RM5 m (PAT) = RM100m (OCK have about 11MW (based on old tariff of RM1/- perKW), an estimated cost is about RM9m per MW for old solar PV with RM1 tariff per kW, will give OCK of about RM99m at cost).

Revised Estimated Value = RM900m or about 94 sen per share. (upside 40 sen or 70% from 55sen per share)

SOLAR
OCK's solar should be making some profits (RM5-6m) this year from the acquisitions of about RM40m (giving the acquisition payback period of 6-7 years). Hopefully they may gear up to participate in bigger solar pv projects. [btw, Slvest, making only about RM16m p.a. has a PE of 81x, imagine if only OCK solar biz say RM5m x PE81x = about RM400m.

TOWERCO
Towerco EBITDA (FYE20) is about RM110m. Using multiple of 10x, EV of towerco is RM1.1b reduce net debt say RM500m, equity value is about RM600m.

CONTRACTING & ETC
Analyst gave it about RM300m (have not take into account recent contracts from NFCP).

ESTIMATED VALUE
Total estimated value is about RM1.2b, with 959m shares = about = RM1.25 per share
Compare with share closing of 55 sen, there is a discount (margin of safety for about 50%)

For brief understanding of OCK
1) https://humbledinvestor.blogspot.com/2020/04/most-potential-stock-to-benefit-from.html
2) https://humbledinvestor.blogspot.com/2020/04/how-to-determine-right-valuation-for.html

1) Company that can benefit with NFCP should be ok la, even though a bit of delay here and there. RM400m per annum of contract for 5 years. OCK already awarded about RM60m, no big deal, but a positive move la.

2) More towers, more sustainable cash flows (cash flow comes first and profit comes later as they pay down their 6-7 years loan of about RM3m per annum). based on loan outstanding for towerco of RM380m @ 5%p.a. - Initial years, profits are low due to loan interest, but cash flow is reasonably good if we add back depreciation of RM36m p.a. (early years maintenance is low as some towers are new)

3) Expanding solar energy 6MW to about 12MW from acquisition of "old solar PV farm" with good tariff and with 15 years remaining concession (cash flow not bad). Again, profit may be low for initial years due to depreciation and interest costs.

EPF owns about 61m shares or 6.39% in OCK. EPF has shown some interest since Apr, May and June 2020, with a 4-5 million purchases. Hopefully, post CMCO, during RMCO more sectors will improve due to better sentiments in the stock markets.

Unlocking its towerco, meaning how much is the towerco biz is valued by private equity

1) Turnover is about RM150m (Myanmar+Vietnam+Malaysia)

2) EBITDA is about RM100m (60% of Vietnam and 100% of Myanmar & Malaysia)

3) Stategic partner (RHB) - likely EBITDA Multiple of 10x, hence, value of TOWERCO BIZ alone is RM100m x 10 = RM1.0 billion.

4) Towerco biz alone = RM1.0bil, assuming margin of error 20%, worst case, the towerco biz is RM800m. Market cap today is only RM560m (for entire group, contracts, solar and towerco)

Why it drop since 2017?
1) pre/post 2018 GE, uncertainty in telco spectrum policies, telco held back capex (change of government in 2018 also causes many many small cap stocks to drop)

2) research house too aggressive in towerco (especially Myanmar), expected to complete in 2016, but it completed in 2018. Why, when they entered agreement with Telenor, they are suppose to built according to geographical coverage and Myanmar authorities change it to population coverage (hence resubmit and approval for land, and red tapes slowed down)

3) If you take a look at their top 30 shareholdings, they past few years, I think they are taken out of Shariah, it drop when all Shariah institutions was selling it down 3 to 4%.

Instead of too concern over the past few years, lets focus in next 2-3 years:

1) OCK benefited from NFCP, this is a fact, and there is RM21.6b for next 4-5 years

2) OCK is unlocking its towers (part delay due to pandemic), as mentioned by RHB

@holyspirit, I focus more on the towerco that gave sustainable cash flow, hence, I follow their EBITDA (how towerco is calculated) which has grown from RM60m (2016) to RM140m (2019) over last 3 years (high capex and expanding project don't bring much profits as they have huge depreciation and interest expenses). Many not familiar with towerco biz works, their cash flow exceed their accounting profits. Just take example Myanmar, turnover is RM70m, EBITDA is RM50m, depreciation itself is about RM17m.

it need a good story and real events to make it happen. one is the strategic partner (unlock value) and two is big contract from NFCP. else, "punter" unable to tell friend what is so "great".

All depends on ASP. Some estimate profit FYE21, 500m, 570m and 650m. Everyone uses different ASP. Conservative, 500m likely. Post FYE21, nobody care to estimate. So still have upside, depends what PE you choose.

https://research.rhbtradesmart.com/attachments/21/rhb-report-my_telco_sector-update_20200604_rhb-806285418257499785ed7ecc1c15cf.pdf

RHB uses enlarged share capital (1.135b) to calculate the 65sen target price BUT without adding the warrant exercise (71 sen x 264 warrants) proceeds of RM187m). After including the proceeds, the adjusted TP is 81 sen

delay award spectrum, delay contracts. If NFCP revoked, there will be a negative effect, but OCK already announced the RM60m contracts for Phase 1.

@holyspirit, fundamentally its improving over time, last time (2016) is 30:70 (recurring income:contract income), next few years it is 70:30, and with contracting biz coming from NFCP/700Mhz, it will be 60:40. Chartwise, no clue. Growth wise, should be able to achieve double digits (estimating 15-20% conservatively)

February 2020 (extracts from www.nfcp.my)

NFCP 1: Award and Commencement of Project. [Details] [FAQ] - RM290m (I've read OCK has about RM60m contract)

RM3 Billion Allocated For The Rollout Of NFCP Initiatives Throughout 2020. [Press Rele

Telco services biz likely to benefit (award of 700Mhz band to telcos) as telco has to plan their capex which was delayed for past 2/3 years (see below link). OCK contracting biz dropped significantly in 2018/9 due to the delay implementations of 700Mhz. So, 2020 and 2021 will be a bumper year for contracting biz and its towerco biz growth.

https://www.thestar.com.my/business/business-news/2018/02/03/all-eyes-on-700mhz-spectrum

@kaycee, thanks for the surprising good news. Will be positive for OCK for new contract works. 2nd half will be better than last year (besides towerco and solar pv).

Past few years, capex was delayed by telcos due to uncertainties because of change of government and delay in award of 700Mhz band.

Telco & telco services theme soon? Let the glove sector take a rest.

1) @benjajaj, welcome, towerco EBITDA is about RM110m, so the estimates valuation (10x EBITDA) for towerco alone to place out to strategic partner is about RM1.1 billion. (50% discount to OCK market cap of RM0.53 billion @ 3 June 2020).

2) Once strategic partner participate, say RM100m, or 10% of the towerco biz, towerco biz can further get loan from bank say, about RM200m (30:70). With RM300m, as mentioned by RHB analysts, OCK can expand in towerco more quickly, expand in Vietnam and increase towers in Myanmar and Malaysia.

3) With expansion, EBITDA will improve from to RM150m say in 2023 (in 2-3 years), and get it listed at EBITDA multiple of 12.5x, valuation of towerco is RM150m x 12.5 = RM1.9 billion. Strategic partner can then sell to the market/public at about RM190m (10%). Making a 90% return.

(estimates only)

@benjajaj, OCK may be ripe for investment as they are unlocking their 4,200 towerco biz in two steps, first do placement for their towerco biz to strategic partner - to expand faster (likely Singapore private equity, as mentioned in RHB's report) and second, get it listed about one or two years post placement post expansion. And on top of that, they are riding on 5G (NFCP) implementation, takes about 4-5 years, not to mention their growing ownership of solar power.

Page 28 of Annual Report 2019, OCK towerco biz make about RM150m with EBITDA Margin of 75%. That means the EBITDA is RM113m, if they sell at multiple of 10x (market for large telco is 12.5x), it will be valued about RM1.13b for towerco alone. The market cap today 1 June 2020, only RM508m. The other biz is free, telco services, solar energy, engineering and trading.

Third quarter for NFCP, means Jul to Sep 2020.

Annual Report 2019 is out, interesting write up on towerco biz, better than I thought.

great, construction play started, next week, maybe 5G (NFCP) or Technology, need rotation from gloves

Analyst mentioned strategic partner for towerco may come in post circuit breaker/MCO. So, re-rating in the next couple of weeks is possible. Hope they can unlock RM160m to RM220m.

risk on

Despite the negative outlook of the global markets, OCK remains optimistic of the
telecommunication industry as a whole. OCK is positive of the implementation of the RM21.6
billion NFCP in Malaysia which is already benefitting OCK with a faily large Order pipeline.