1H16 PATAMI of RM9.2m came in within expectation and accounted for 32.6% of our, and 32.1% 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 capex towards 2H/4Q of each financial year. Post-result review, we lowered our FY16E/FY17E PATAMI marginally by 1.8%/1.3% after raising our minority interest estimate and finetuning.

Maintained OUTPERFORM call with an unchanged TP of RM0.93 based on DCF valuation (WACC: 9.1%, TG: 1.5%). In line. 1H16 PATAMI of RM9.2m (+12% YoY) came in within expectations at 32.6%/32.1% of our/market consensus’ full-year estimates. The latest quarterly results are well within the historical 1H contribution of 32%-39% range of fullyear 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 0.67 sen DPS, translating into a dividend yield of 0.9%.

YoY, 1H16 revenue soared to RM192.5m (+52%) on the back of higher telecommunication network services contribution (+59% to RM156m), mainly underpinned by its regional business in Indonesia, Cambodia and Myanmar as well as higher contribution form contracting works in Malaysia. The group’s M&E division, meanwhile, improved by 73% to RM13.9m, thanks to higher delivery of engineering works on the existing projects. PBT enhanced 28% to RM15.2m, mainly driven by higher turnover but partially offset by higher depreciation expenses and finance costs as a result of larger tower portfolio.

QoQ, 2Q16 revenue advanced by 45%, largely due to higher revenue contribution from Telecommunication Network Services (+54%) as telecommunication operators awarded more contracts, in-line with their networks rollout plans. In addition, the higher delivery of engineering works on the existing projects also led the M&E Engineering Services division to perform better (+60.5% to RM8.6m) as compared to the preceding quarter. PBT, meanwhile, improved significantly to RM9.4m (+64%) with margin increasing by 100bps to 8.3%, in tandem with the higher turnover.

Outlook. OCK is expected to continue benefiting from the rapid network expansion plan undertaken by the local major telcos. The group aims to grow its recurring revenue business via own-build and acquiring existing tower-sites operators in ASEAN. We expect the group’s recurring income contribution to account for c. 21% (of its top line) in FY16 and 36% a year later after delivering 920 telecommunication towers to Telenor Myanmar by end-CY16 and complete the acquisition of 60% of Southeast Asia Telecommunications Holdings Pte Ltd (SEATH), which owned 1,938 towers throughout Vietnam. 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.

We continue 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 activities.

Risks to earnings are: (i) project risks, (ii) dependence on directors and key personnel, and (iii) dependence on major customers/contracts.

Source: Kenanga Research - 30 Aug 2016