1Q16 PATAMI of RM3.7m came in within expectation and accounted for 12.7% of our, and 12.3% of consensus’, full-year estimates. Moving forward, we expect the group’s business to grow progressively, in tandem with the telecom operators, who tends to ramp up its capex towards 2H/4Q of each financial year. Post-result review, we made no changes to our FY16/FY17 earnings forecast as the results came in within expectation. We maintain our OUTPERFORM call with an unchanged TP of RM0.95 based on DCF valuation (WACC: 9.1%, TG: 1.5%). We continued to like OCK for: (i) its healthy cash flow on the back of escalating recurring income trend, (ii) spreading its wings in Myanmar and across Southeast Asia, (iii) its ability to ride with the passive infrastructure sharing trend, (iv) its EBITDA margin expanding trend, and (iv) potential growth through M&A activity.

Within-expectation. 1Q16 PATAMI of RM3.7m (+21% YoY, -68% QoQ) came in within expectations at 12.7%/12.3% of our/market consensus’ full-year estimates. The latest quarterly results are well within the historical 1Q contribution of 12%-20% range of full-year results for the past three years.

No dividend was declared, as expected. For the full financial year, we expect the group to reward shareholders with 0.61 sen DPS, translating into a dividend yield of 0.8%.

YoY, 1Q16 revenue improved to RM78.4m (+40%) on the back of a higher telecommunication network services contribution (+64% to RM61m), mainly underpinned by its regional business in Indonesia, Cambodia and Myanmar as well as higher contribution form contracting works in Malaysia. The green energy and power segment, meanwhile, suffered a dip of 16% to RM10.4m due to a drop in delivery of power solution equipment as a result of the uncertainty of the currency costs as well as slower business conditions. PBT improved 11% to RM5.7m, thanks to higher turnover but partially offset by higher depreciation expenses and finance costs as a result of larger tower portfolio.

QoQ, 1Q16 revenue fell by 28%, largely due to lower telecommunications network service revenue (-39%) as telecom operators generally award more works to complete their networks rollout plans in the last quarter of the year. On top of that, 4Q15 had also set a high base where the group completed extensive projects in Indonesia, Cambodia and China. The lower telecommunications network services segment contribution was partially mitigated by higher revenue of M&E (46% to RM5.3m) as it speeded up the delivery of engineering works to the existing projects. EBIT, meanwhile, dipped by 57% to RM9.8m with margin lowered to 12.6% (vs. 21% in the preceding quarter) as a result of lower turnover coupled with higher operating expenses.

Outlook. The group is set to complete the first batch of c.400 telco towers to Telenor Myanmar in mid-2016 and is on-track to deliver 920 towers by end- CY16. The Myanmar project is expected to contribute c.RM60m revenue per annum with a lucrative targeted EBITDA margin of c.60%, significantly higher than the group’s FY15 EBITDA margin of 16.5%. Apart from focusing on the telecommunication business, we understand that the group is also sourcing for more business and/or investment opportunities in the sustainable energy sector that is rapidly growing in demand.

Source: Kenanga Research - 26 May 2016