OCK may see headwinds from Myanmar coup


OCK Group Bhd’s projects in Myanmar could face headwinds as the state of emergency declared by the military coup could hinder the progress of its site deployments.

RHB Investment Bank Bhd (RHB Research) analyst Jeffrey Tan said network shutdowns or delays in site deployments from the emergency order could present some earnings and execution risks to OCK’s towerco business in Myanmar.

“However, we believe the impact should be manageable as communication services are deemed essential, and mobile operators are bound by the long-term master lease agreements with committed site rentals.

“In the worst-case scenario of a force majeure invoked, we believe OCK could still look to grant some rebates on-site rentals and offer flexible repayment terms,” he said in a research note yesterday.

The Myanmar military (junta) overthrew the democratically-elected government led by civilian leader, Aung San Suu Kyi, on Feb 1.

It did so after claiming fraud in the November 2020 general election, where the Aung San-led National League for Democracy party scored a landslide victory. The takeover has led to widespread street protests and international condemnation.

Tan said the junta is unlikely to resort to punitive economic actions as it would exacerbate social unrest and further threaten economic activities amid the challenges posed by Covid-19.

OCK’s Myanmar towerco accounted for about 18% and 45% of group revenue and Ebitda in the first nine months of the financial year 2020 (9MFY20) respectively.

A 10% fall in the sum-of-parts valuation for the Myanmar business would impact RHB Research’s target price (TP) by 4%, with all else being equal.

According to RHB Research, the group has 1,073 revenue-generating sites in Myanmar, with an out-standing orderbook for 200 new sites. The latter could face some delays, due to widespread street protests affecting work projects.

The research house has raised the risk premium in its discounted cashflow valuation for OCK’s Myanmar business to factor in political and execution risks.

“Its valuation is at an undemanding six times FY22 enterprise value (EV)/Ebitda at -2 standard deviation from the historical EV/Ebitda mean, with near-term weakness presenting opportunities to accumulate the stock. We expect 4Q20F revenue to increase by 15%-20% quarter-on-quarter and 10%-12% year-on-year, driven by recurring towerco contributions and site deployments,” Tan said.

RHB Research maintained ‘Buy’ call on OCK after lowering its TP to 59 sen from 63 sen previously.

“Key risks to our call include weaker than expected earnings/ margins and delays in project execution,” he concluded.

OCK deploys and maintains the core network infrastructure for telcos, and has a good track record of deploying network infrastructure in rural areas under the Universal Service Provisioning fund.

The group has plans to increase the revenue contribution from green energy sources, and continues to look at potential mergers and acquisitions opportunities regarding solar assets.