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OCK targets regional footprint after Vietnam tower firm buy

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by August 13, 2016 General

TELECOMMUNICATIONS network solutions provider OCK Group Bhd is moving closer to building its regional footprint following the acqusition of a tower company in Vietnam.

Founder and group managing director Sam Ooi Chin Khoon tells StarBizWeek that the focus in Vietnam is to build more towers and that OCK remains committed to growing its tower assets in the region.

Last week, OCK’s 60%-owned subsidiary, OCK Vietnam Towers Pte Ltd, inked a conditional share sale and purchase agreement with Vietnam Infrastructure Ltd (VNI) to buy the entire equity interest in Southeast Asia Telecommunications Holdings Pte Ltd (Seath) for US$50mil (RM203.85mil) cash.

Listed on the London Stock Exchange’s alternative investment market, VNI, a closed-end fund launched in July 2007, owns 100% of Seath, a firm that was set up in Singapore seven years ago.

The remaining 40% equity interest in OCK Vietnam, meanwhile, is held by Singapore-based fund CapAsia Telecommunications Ltd, a unit of CapAsia Asean Infrastructure Fund III L.P.

The acquisition will be financed via 40% equity and 60% debt, of which OCK will fork out US$12mil (RM48mil) and CapAsia will pay about US$8mil (RM32mil), says Ooi, adding that it intends to cough up the balance via borrowings.

The group expects to complete the deal by the fourth quarter of this year.

“Since VNI’s term will end in July 2017, the fund is looking for a party to buy Seath in order to return funds to shareholders,” says Ooi, adding that both OCK and VNI have been in talks since last year.

Ooi notes that as the majority shareholder in Seath, it will manage the tower operations in Vietnam.

“Seath is the largest independent tower company with 1,938 telco towers spread throughout Vietnam and we are confident of growing the number of towers there with the expertise we have,” he says.

OCK’s telco network services segment is the largest revenue contributor to the company, followed by green energy and power station operations, mechanical and engineering services and trading segments.

On the Vietnamese acquisition, Ooi points out that Seath is the largest independent tower company with 1,938 telco towers. Its tenants are mobile network operators in Vietnam.

Its tenancy ratio now is 1.25 times and this is expected to grow to 1.27 times by the end of this year.

“We are buying Seath free of debt and are only acquiring its subsidiaries that are involved in the development, installation, operation and leasing out of base transceiver station (BTS) towers,” explains Ooi.

And these tenants are renting the BTS towers on a long-term contract between five and 10 years. The rental income is denominated in Vietnamese dong.

“About 80% of Seath’s tenants is MobiFone, the second-largest mobile network operator in the region,” he reveals, adding that other tenants include VinaPhone and Gmobile.

According to OCK, Viettel Mobile is the largest mobile operator in Vietnam, which also owns about 20,000 towers out of the total 55,000 towers in the region.

Nonetheless, the opportunities for growth in Vietnam is huge, says Ooi, adding that a mobile network operator had recently requested for 90 towers to be built.

“The rollout of the 4G or long-term evolution network in Vietnam in the near future will require more towers to be built, as consumers continue to embrace the benefits of connectivity,” he points out.

MobiFone added 15 million new subscribers, surpassing the 33.6% target set for 2015 and its customer base grew by 54% from a year ago, according to OCK’s notes to the exchange.

On how OCK intends to fund its portion of the acquisition of Seath, Ooi says this will largely be through an ongoing 10% private placement exercise that will raise gross proceeds of up to RM64mil. OCK is placing out 79.22 million shares or 10% of its share base at a price of 81 sen per share. The new shares will be listed on Aug 17, 2016.

“From the RM64mil proceeds raised, about RM48mil will be used for Seath’s acquisition, while the remainder will go for other regional expansion,” explains Ooi.

In terms of valuations, the purchase price of Seath works out to an enterprise value or earnings before interest, tax, depreciation and amortisation (EBITDA) multiple of about 7.98 times and price-to-book value of 1.79 times based on Seath’s unaudited financial year 2015 (FY15) accounts.

Ooi deems the purchase price attractive, considering the growth potential of the Vietnamese telco tower market.

Ooi admits that Seath’s profit margins for the last three years were relatively thin and this is because VNI, being a fund manager, didn’t concentrate on maximising the efficiency of the towers.

“As a fund, VNI is involved in investing in a diversified portfolio of infrastructure and infrastructure-related assets in Vietnam.

“With OCK managing the operations, we will be able to reduce Seath’s high operating costs and manage it efficiently to increase profit margins due to our expertise in the industry,” he explains.

For FY15, Seath posted a net profit of RM7.4mil on a revenue of RM48.9mil, compared to a net profit of RM7.2mil and a revenue of RM48.5mil in FY14.

In FY13, meanwhile, Seath registered a net profit of RM7.6mil on a revenue of RM46.4mil.

As at March 31, 2016, OCK had cash and cash equivalents amounting to RM139mil, with borrowings of RM81mil.

OCK will start seeing contributions from Seath from the first quarter of next year, Ooi notes, adding that this would inevitably boost its topline growth.

Expansion and more fund-raising?

Ooi adds that OCK aims to grow its assets while strengthening its recurring income through strategic regional expansion. He adds that over the next five years, OCK intends to build up to 3,000 telco towers in the region.

Meanwhile, Kenanga Research expects OCK’s turnover to record 26% and 22% year-on-year growth in 2016 and 2017, respectively, mainly from its managed services’ revenue contribution from PT Putra Mulia Telecommunications (PMT) and the rental business from Telenor Myanmar.

OCK currently maintains 28,000 towers and equipment in Indonesia under PMT, he reveals.

As for Myanmar, Ooi says OCK intends to deliver 920 telco towers to Telenor Myanmar by the end of this year.

“In Malaysia, we have about 200 towers and seven solar farms with a total of 3.3MW,” says Ooi.

OCK’s project in Myanmar is expected to contribute RM60mil in revenue per annum with a targeted EBITDA margin of 60%, higher than the group’s 2015 EBITDA margin of 16.5%, according to Kenanga Research.

The telco industry in Malaysia is booming and there will be more new players like U Mobile Sdn Bhd who want to gain market share among the bigger players such as Digi.com Bhd, Maxis Bhd, Celcom Axiata Bhd and Time dotCom Bhd, opines Ooi.

On whether OCK intends to raise more funds, Ooi says not for the time being.

As for other regional expansion, the group would like to explore Laos, Cambodia, Thailand and the Philippines.

OCK shares closed down one sen or 1.80% at 82 sen yesterday, with a market capitalisation of RM653.6mil.

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