RHB keeps OCK as top sector pick, expects weaker 2Q earnings

KUALA LUMPUR: RHB Investment Bank Research has kept OCK Group Bhd as its top sector pick despite expectations of weaker revenue and profit after tax in its upcoming earnings result, scheduled for Aug 27.

Despite the weaker earnings, the underlying performance of the group would still be ahead of that of its mainstream telco peers given the high level of utility-type infrastructure revenues, said the research house.

"The tower leasing business, a key driver, is projected to contribute >40% of revenue (1Q20: 38%). Most importantly, recurring revenue portions are set to expand to >70% in 2Q20 (1Q20: 68%)," it added.

For the quarter, RHB anticipates the result to be negatively affected by the full-quarter impact of the movement control order.

"Group revenue and PAT are expected to decline by 1-3% QoQ (-6% to -8% YoY) and 7-8% QoQ (-10% to -11% YoY), bucking the typical seasonal uplift on weaker contracting and trading & maintenance revenues," said RHB in a note.

The research house however remains positive over OCK's potential advantage when it comes to the government's focus on digitalisation.

"OCK is no stranger to universal service provision (USP) projects, the cornerstone of the MYR21.6bn National Fiberisation and Connectivity Plan (NFCP).

"The impending rollout of 5G is positive for the group, with renewed capex spending by telcos to densify networks by deploying more small cells," it said.

Meanwhile, the group's proposed 1-for-10 rights issue with free warrants to raise up to RM24mil is pending shareholder and regulatory approvals, and should be completed by 4Q20.

It said the discount to the theoretical ex-rights price of 20 sen translates to a over 50%, which is attractive in the current liquidity-driven market.

RHB has a target price of 68 sen on the stock, which offers 35.5% upside to the last traded price of 50 sen on Friday.
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