• Keep BUY, lower MYR0.70 SOP TP (from MYR0.78), 56% upside, c.2% yield. We believe the soft patch in the contracting business is behind the group with sequential recovery seen in the telco engineering services segment in 3Q24. With the progressive deployment of 5G sites by U Mobile (UM) and new sites to be awarded under JENDELA Phase 2 (JP2), a stronger FY25 is expected. Earnings growth is supported by a robust orderbook of >MYR300m and recurring revenues which make up over two-thirds of group revenue.

• Tenderbook of c.MYR900m; scouring for more data centre (DC) jobs. OCK’s outstanding orderbook stood at >MYR300m as at end-November with the telco network services (TNS) segment making up MYR170m and non-TNS jobs accounting for the remainder (c.MYR140m). Of the non-TNS orderbook, DC jobs make up MYR73m with a tenderbook of c.MYR23m. Its digital tenderbook of MYR750m comprises projects in the transportation and healthcare sectors. OCK is vying for more DC-type jobs which typically offer higher margins vs contracting works.

• To benefit from sites under JP2. We expect the Government to unveil JP2 over the next 3-6 months with an additional 2,000-4,000 sites to be awarded. We think OCK stands a good chance of bagging some site clusters under JP2 given its past track record of execution. The well flagged delays plaguing JP1’s rollout could potentially see some contractors ‘prioritised’ for JP2 awards, in our view. JP1 delays have derailed the handover of sites to Part 2 contractors (MNOs) with only 58% of completed sites being on air. OCK was the sub-contractor for UM’s sites in Sabah under JP1.

• Earnings risks likely priced in; earnings to stage stronger recovery into FY25F. We believe the >20% sell-down on the stock over the past three months has priced-in concerns of near-term earnings weakness from 5G policy uncertainties. We see a robust recovery in FY25F earnings from: i) The impending award of JP2, ii) 5G site deployment and upgrades from UM, which has been picked as the second 5G network provider, and iii) stronger digital contributions. Note that OCK earlier inked an MOU with UM for 5G site collaborations and was part of the latter’s 4G network expansion under a collaboration with ZTE. Based on our channel checks, UM plans to roll out 5-8k 5G sites via the upgrade of existing 4G sites and new builds.

• FY24-26F core earnings cut by 20.2%, 21.5%, and 16.6% post results call to reflect weaker-than-expected billing momentum from contracting/network engineering services, partially offset by stronger DC revenue momentum and rising medium-term digital contributions. Risks: Weaker-than-expected earnings/margins, project execution delays, regulatory setbacks, and higher- than-expected capex. Our TP includes a 2% ESG premium.

Source: RHB Securities Research - 3 Dec 2024