RESULTS

• 1Q18 revenue fell 9% yoy and 27% qoq to RM97.5m. A seasonally weaker quarter with telecommunications network service (TNS) experiencing a 12% yoy and 24% qoq decline in jobs. We expect this division to pick up as 4Q is typically the quarter with the highest job orders for the year. To recap, the group secured more than RM100m frame contracts for full turnkey, upgrading and network fiberisation project towards the end of 2017. This will help drive 2018’s revenue and profits.

• …but net profit grew 9% yoy (-41% qoq) to RM5.1m). Despite a lower revenue base, 1Q18 net profit was driven by: a) higher tower rentals from Myanmar, with the completion of 820 sites as of Mar 17; b) earnings from Vietnam tower company, SEATH; and c) lower effective tax of 20% (1Q17: 26%; 4Q17: 28%).

IMPACT

• Strong tower earnings drive margin expansion. With increasing tower leasing income from Myanmar and Vietnam, regional net profit surged 87% yoy to RM7.1m (1Q17: RM3.8m). For Myanmar’s operations, OCK has completed, owns and is leasing out 820 telecommunication towers. The group began its venture into Myanmar, working with only one mobile network operator (Telenor Myanmar) but has since expanded to work with all of Myanmar’s telco operators, including Myanmar Posts and Telecommunications (MPT), Telecom International Myanmar (Mytel) and Ooredoo Myanmar. The increasing tenancy ratio over time will boost OCK’s operating margins and drive sustainable earnings. Additionally, OCK Vietnam owns 2,100 telco towers and expects strong growth, with telco players gearing up to roll out 4G LTE in the near future.

• We maintain 2018 net profit forecast of RM30m (+15% yoy), driven by: a) completion of 920 towers in Myanmar; b) full-year earnings from Myanmar towerco, and b) 5% market share of Malaysian telcos’ capex to be undertaken by OCK to drive TNS earnings.

VALUATION/RECOMMENDATION

• Maintain BUY with a lower SOTP-based target price of RM0.80, or 20x 2019F PE and 8.8x EV/EBITDA. Our previous target price was RM1.05. We have conservatively assumed a lower PE multiple of 12x for the TNS division (from 15x) in view of headwinds from the domestic telcos (the new minister is working to achieve “half the price, double the speed” for broadband services in Malaysia).

Source: UOB Kay Hian Research - 31 May 2018