KUALA LUMPUR: RHB research expects a seasonally stronger quarter with stronger margins for OCK Group Bhd
underpinned by the tower leasing business as the key growth driver.
"Valuations are supported by the positive outlook of its regional towerco businesses and the increasing base of recurring revenues," it said in a research note.
The research house maintained its buy recommendation with an unchanged target price of 89 sen.
RHB expects 4Q revenue rising 18-20% quarter-on-quarter driven by higher tenancies/co-locations in Myanmar and Vietnam and a recovery in domestic billings.
"Core earnings are likely to grow 10-15% sequentially on stronger EBITDA albeit partially offset by higher financing cost from the partial USD30m debt push down at its Vietnamese operations (SEATH) into VND."
The research house added that OCK recently secured a 300 sites built-and-lease contract from a local mobile oerator, which when completed would contribute to a RM18mil uplift in revenue per annum in lease revenues.
"Tower leasing made up 26% of revenue in 9MFY18 and projected to widen to 30% by end-FY19, supported by M&A and additional site tenancies," it said.
RHB said OCK management has guided that there will be a tighter focus on cash flow and working capital moving forward.
The research house sees this as a positive move as the towerco business has strained the group's balance sheet, increased overheads and renewed concerns on funding.
"Management is exploring alternative funding options and has ruled out a cash call. The listing of its towerco business (OCK SEA Pte Ltd) in the medium to longer-term should relieve pressure on its balance sheet," it said.
It added that improving debt collection represents another avenue to beef up its working capital and cash.
"Assuming OCK halves its debt collection days currently, this could potentially unlock MYR80-100m in cash, based on our estimates."
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