OCK (0172) - SOS Will OCK be the last Jedi? 2017 Final Part

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 WHY OCK GROUP SHARE PRICE NOT PERFORMING?

It is very hard to predict the share price.  Even using technical analysis, the success rate on predicting the movements of share price are limited.  In the short run, the share price may not reflect the valuations, hence, they are many over valued or under valued stocks.



WHY NOT MANY CAN SUBSCRIBE TO VALUE INVESTING PRINCIPLE?

Mainly because of their own temprement.  Their expectations is focus on the share price (in the short run) while their selection is based on estimated valuations (for long term - for me 3-5 years), hence, expecting the share price to reflect the valuation immediately is not rationale - hence, cause the frustrations.

In reality, we have to accept this principle, else, it should not be called value investing:

"The father of value investing, Benjamin Graham, explained this concept by saying that in the short run, the market is like a voting machine--tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine--assessing the substance of a company.

The message is clear: What matters in the long run is a company's actual underlying business performance and not the investing public's fickle opinion about its prospects in the short run."

RECENTLY, WHY SO MANY FRUSTRATED PLAYERS?

Because, the players expectations (of their under valued stocks) and the stock price move in opposite directions, except for some popular stocks.

One of the many, I like to discuss is OCK Group.


WHY OCK FUNDAMENTAL IMPROVES WHILE SHARE PRICE DROPPED?

1.  Again, it may be pointless for me to explain the reasons for the share price movements.  It could be liquidity, it could be different perceptions (high PE, low ROE), it could be sector issues, it could be "unpopular" for the short run, etc.

2.  I like to briefly explain why the high PE and the low ROE, so we can appreciate this counter slightly better.

3.  PE of 30x - crazy isn't it? It is because it raised about RM200m equity in 2016, their investments (in tower business) is still in progress and have not fully yield its maximum upside.  There is some similarity with other infrastructure projects, such as toll roads, IPPs, water concessions, or even plantations, there is no earning yields for the first 3 years because of construction in progress.

Estimate of PE (non-tower sector)

Market Capitalisation:  RM785 million @ 90 sen per share

(Extract from research report, the most conservatives one)

                   2016    2017    2018
EBITDA       60m    99m     120m

By End of 2018, increase of EBITDA is about RM60m.
Assumed 90% is contributed by tower biz, increase = RM54m

(a)  Tower sector valuation (accepted by market, EBITDA multiple) = RM54 x 10x = RM540m (this is about 2.7x of equity injection - just for reference, not comparison, SILK sold to PNB for about 3x its equity injection).


(b)  Non Tower Sector valuation = RM785m - RM540m = RM245m (Earnings is about RM28m), therefore PE = 245/28 = about 8.75x

Therefore the PE (for non-tower sector) = PE of 9X

So, using PE for the entire business is "misleadin"g. (It is like a Construction company, just diversified into toll roads concessionaire, you must split it into two seperate sectors to estimates its value).

4.  Why the ROE is so low?  Similarly, the Shareholders Funds (without the Tower sector) is RM236m (RM436m - RM200m).

ROE should only be calculated on the non-tower biz = about RM28m/ RM236m = 12%.  Hence, the ROE is not too bad.

5.  The above is merely an estimates of the valuation.

SO, WHAT IS THE UPSIDE OF OCK BASED ON THE FOLLOWING "FUNDAMENTAL" NOT POPULARITY?

(a) OCK secured contract from MyTel to construct additional 300 towers in Myanmar (Growing No of Towers)

(b) Additional co-location of about 200 towers in Myanmar not fully reflected yet in accounts (Growing Tenancy Ratio)

(c) Telenor's balance of 280 towers to be construted

(d) AES JV project has yet to contribute

(d) Solar power earnings not fully recognised

Btw, I preferred OCK WA (3 years to expiry), upside is better (currently at 26.5sen only 8% premium with 3 years to expiry. 




ANY OTHER STOCKS WITH SIMILARITY LIKE OCK GROUP?

There are many more.  Some that I am aware of, such as Ekovest, Gadang, Solution, Bornoil, WCEH, etc. where capex allocation is approved or in progress but the earnings has yet to come in.  That means Equity comes before Earnings, hence the high PE and low ROE for some of them.  Of course, there are also many others where its share price outrun their "estimated value" due to their popularity or public's fickle opinion about its prospects in the short run.

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