Wednesday 25 September 2013

Instacom vs OCK vs RA

Currently there are 3 companies listed in ACE market that are involved in telecommunication infrastructures design, build, upgrade and maintenance work. With the ever increasing demand of higher mobile data & internet speed, these companies are expected to reap some benefits in the future.

Instacom Group (listed Oct 2012) & OCK Group (listed July 2012) are the main players which generates consistent revenue & profit, while R&A Telecommunication Group is not doing well.

Between Instacom & OCK, who is better? If you ask Instacom this question, surely it will tell you that it itself is better, so is OCK.

Lets check the balance sheet of the latest financial period ended 30th June 2013 for all 3 companies.

For market capitalization, both Instacom & OCK are quite close with about RM200 million, while RA is way behind at RM39.6 million.

Instacom OCK RA

Share price (24/9/13) 0.285 0.705 0.045

Total shares (mil) 702.2 284.9 879.0

Market cap (mil) 200.1 200.9 39.6

Net asset/share 0.22 0.24 0.10

Total Assets (mil) 266.3 149.9 113.4

Total Equity (mil) 152.4 63.4 84.7

Total Liabilities (mil) 113.8 86.4 28.7

Total Borrowing (mil) 80.8 59.5 11.1

Current 70.7 41.7 10.2

Non current 10.1 17.8 0.94

Cash 7.6 7 -9.6

Debt/Equity ratio 0.52 0.94 0.13

Dividend yield (%) 0 1.4 0

The NTA for both Instacom (22sen) & OCK (24sen) are also quite similar. However, debt to equity ratio for Instacom (0.52) is much better than OCK (0.94), which means OCK raises most of its business fund through interest-bearing debts rather than from shareholders.

Only OCK paid dividend for FY2012, which is 1sen per share, or 1.4% yield at share price of 70.5sen.

For financial performance, since we only have 3 quarters of results for Instacom now, I will only compare the latest 3 quarterly financial results for these 3 companies.

RM mil Instacom OCK RA


FY12Q4 20.0 6.5 36.2 3.8 6.9 -0.3

FY13Q1 30.2 6.8 30.6 2.2 4.2 -3.1

FY13Q2 36.3 7.7 33.3 2.6 7.7 0.9

From the table above, it is clear that RA is having a hard time. For Instacom, its revenue and net profit are in an increasing trend, while OCK is up and down. Instacom has caught and even surpassed OCK for its most recent revenue.

The net profit margin for Instacom is quite remarkable, which is 20-30% for the last 3 quarters. OCK PAT margin is just 7-10%.

Anyway, OCK is not purely a "telecommunication infrastructure" company. It also involves in green energy & power solution and mechanical engineering service business. For FY13Q2, its telecommunication segment which generates higher margin contributes 61% of total revenue and 81% of total net profit.

To compare the EPS and PE ratio of these stocks, I will estimate the FY13Q3 results using the average of past 3 quarters. With this calculation, the FY13Q3 net profit for Instacom, OCK & RA will be RM7mil, RM 2.9mil & RM-0.8mil respectively. Thus the estimated last 4 quarters net profit will be RM28mil, RM11.5mil & RM-1.7mil.

Instacom OCK RA

Est net profit 4Qs 28.0 11.5 -1.7

EPS (Sen) 3.99 4.04 -0.19

Share price (24/9/13) 0.285 0.705 0.045

PE 7.1 17.5 N/A

It seems like Instacom is undervalued and OCK is over-valued at the moment. If given a fair PE of 10x, Instacom's target price should be 40sen.

Of course this kind of earning estimation may not be accurate. Instacom seems to be in a growing mode and probably will earn more next quarter. OCK may produce some surprise as it has successfully put a leg into Myanmar market.

For jobs in East Malaysia, apart from Weida, Sarawak-based Instacom may have the winning edge for logistic reason. For jobs in West Malaysia, it is for all to grab.

At the moment, it looks like Instacom has a better prospect compared to OCK. Anyway, if you think that such business is worth investing in, you should invest at your own risk.

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