OCK Group Bhd's financial performance for the first half of 2024 fell short of expectations, driven by lower revenue in its Telco Network Services (TNS) segment. The company reported a 2Q24 core profit after tax and minority interests (PATAMI) of RM7.6 million, marking a decrease of 26% year-on-year and 25.5% quarter-on-quarter. This brought the 1H24 core PATAMI to RM17.8 million, representing only 31% and 33% of the full-year forecasts by analysts at RHB and market consensus, respectively.

In response to these results, RHB Stock Broking House maintained a BUY recommendation with a target price of RM0.82, indicating a potential 44% upside, while Kenanga Stock Broking House downgraded its recommendation from OUTPERFORM to MARKET PERFORM, lowering its target price by 30% to RM0.60. The downgrade reflects concerns about weaker revenue visibility and potential delays in the rollout of Malaysia's second 5G network and the JENDELA Phase 2 project.

The weak performance in the TNS segment, attributed to the slow progress in 5G network rollout in Malaysia, has significantly impacted OCK's financials. The company recognised an impairment loss of RM7.6 million on trade receivables in 2Q24, an unusual move given its history of stable, recurring payments from major telco tenants. Despite the challenges, OCK's site leasing revenues remained stable, contributing 31% of total revenue, while the power solutions segment saw significant growth, with revenue more than doubling quarter-on-quarter.

OCK's outstanding order book stands at approximately RM270 million, with around RM105 million attributed to TNS projects and the remainder to non-TNS initiatives, including recent data centre (DC) power supply contracts worth RM32.5 million. The company's established track record in public sector infrastructure projects, such as JENDELA and Universal Service Provision (USP) clawback projects, positions it well for securing future digital projects from the government.

Looking ahead, OCK is actively tendering for more DC-related jobs, with DC revenues contributing about 6% of group revenue year-to-date. The company also disclosed its Scope 1 and 2 emissions for the first time in 2023, as part of its environmental, social, and governance (ESG) initiatives. OCK currently operates 29 solar farms across Malaysia, with a combined capacity of 14MW, and is seeking additional solar projects.

Source: RHB, Kenanga
Title: A Light Quarter; Keep BUY, Lower Revenue Visibility