OCK earnings remain highly sustainable on recurring income, says Kenanga

KUALA LUMPUR: Kenanga Research expects OCK Group Bhd's overall earnings to remain highly sustainable due to solid recurring revenue streams and potential benefit from upcoming government initiatives.

"While the group appears to be facing some hurdles in the near-term no thanks to Covid-19 induced movement restrictions, the group’s solid asset portfolio provides a high level of recurring income (c.70%) from tower leasing and solar farms.

"As the group progressively keeps up with its organic/inorganic expansion plans, it is natural that we anticipate its earnings pool to expand," it said.

It added that there could be spillover from the Jendela initiative and green energy tenders to further supplements its non-recurring income order book.

However, Kenanga revised its earnings forecasts lower for OCK following its 9MFY20 earnings result, that was below expectations.

OCK's 9MFY20 Patami was 64% and 67% of Kenanga's and consensus full-year estimates, likely owing to the movement restrictions impeding the execution of tower rollouts.

Kenanga noted that typically more tower contracting works are fulfilled in the second half of the year.

"Post-results, we cut our FY20E/FY21E earnings by 8%/3% to account for less optimistic income from engineering and installation works," it said, while maintaining its "outperform" call on the stock and lowering its target price to 59 sen.

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