KUALA LUMPUR: Following the military coup in Myanmar, OCK Group Bhd could see earnings growth headwinds as network shutdowns could present some execution risks to the group’s towerco business in Myanmar, says RHB Research.
The military coup led to mobile operators shutting down Internet access, including access to social media platforms.
RHB Research noted that the military coup in Myanmar could hinder the progress of site deployment, saying that it was increasing the risk premium in the discounted cash-flow (DCF) valuation for its Myanmar business to factor in political and execution risks.
“Its valuation is at an undemanding six times enterprise value for financial year 2022 (FY22) at -2 standard deviation from the historical enterprise value mean, with near-term weakness presenting opportunities to accumulate the stock, ” it said.
The research house is keeping a “buy” call on OCK Group with a lower target price of 59 sen from 63 sen a year ago.
OCK’s Myanmar towerco accounted for around 18% and 45% of the group’s revenue and earnings before interest, tax, depreciation and amortisation (Ebitda) in the first nine months of FY20.
“A 10% fall in the sum-of-parts (SOP) valuation for the Myanmar business would impact our target price by 4%, all else being equal.
“We gather the group has 1,073 revenue-generating sites in Myanmar, with an outstanding orderbook for 200 new sites.
“The latter could face some delays, due to widespread street protests affecting work projects, ” RHB Research added.
However, the research house believes that the impact should be manageable as communication services are essential services, adding that mobile operators are bound by long-term master lease agreements with committed site rentals.
In the worst-case scenario where a force majeure is invoked, RHB Research said OCK Group could look to grant some rebates on site rentals and offer flexible repayment terms.
“The junta is unlikely to resort to punitive economic actions, as it would exacerbate social unrest and further threaten economic activities amidst the challenges posed by Covid-19, ” it added.
Moving forward, RHB Research expects the group’s revenue to rise by 15% to 20% for the fourth quarter ended Dec 31,2020 (Q4) with its forecast supported by recurring towerco contributions and site deployments.
The research house also expects OCK Group’s core Ebitda to be up by 1% to 4% on the back of higher operating expenditure and delayed billings.
“Contributions from recurring revenues likely grew to 71% in the Q4 forecast.
“Overall, we expect the FY20 forecast earnings to be in line with our and consensus estimates, ” it said.