We are maintaining our optimistic view on OCK after a recent company visit. The group has delivered c.30% o 920 towers to Telenor Myanmar and is set to complete the project by end-CY16. Besides, management has no immediate plan to monetise its towers portfolio for now Meanwhile, the current fragmented independent towe industry landscape in Vietnam could provide opportunity for future expansion. All in all, there is no change to ou FY16/FY17E earnings forecasts. Maintain OUTPERFORM call with an unchanged TP of RM0.93 based on DCF valuation (WACC: 9.1%, TG: 1.5%).

On-track to deliver towers to Telenor Myanmar. OCK ha identified more than 891 telecommunication tower sites thus far and is on-track to deliver 920 towers (although the Norwegian-owned celco is only aiming to receive a minimum 720 towers by end-CY16 to Telenor Myanmar by end-CY16 under the built-and-lease-bac business model. OCK Yangon (a 100%-owned subsidiary) ha completed and handed over 266 (or c.30% of its portfolio) sites to Telenor Myanmar as at 22nd September, and is set to ramp up delivery in the remaining months. All the telecommunication tower have installed sufficient specification to cater for three players. The Myanmar project is expected to contribute c.RM60m revenue pe annum (based on a tenancy ratio of 1.0x) with a lucrative targeted EBITDA margin of c.60%. Should OCK Yangon managed to improve the tenancy ratio, it would provide a positive catalyst to OCK’ forward earnings thanks to the lucrative margin contribution. Based on our conservative sensitivity analysis, every 10% increase in tenancy ratio could boost OCK Yangon’s annual turnover by 21%.

No instant plan to monetarise towers. OCK have no plans to monetised its telco towers' portfolio any time soon in view of it smallish portfolio. Growing its core businesses as well a strengthening the existing local and overseas footprint remain the primary focus for now. Following the completion of SEATH acquisition, the group is set to own a total of 3k telecommunication sites by the end CY16 (across Malaysia, Myanmar & Vietnam) and may only consider the monetisation plan after it build up a sizeable portfolio. We estimated that the group may need to spend another 3 5 years to double its current tower portfolio.

Room to expand in Vietnam. The recent acquisition in Southeas Asia Telecommunications Holdings Pte Ltd (SEATH) could provide a stepping stone to OCK to expand its market share in Vietnam. While management has no immediate expansion plan for now, there is a decent opportunity for the group to enlarge its tower portfolio furthe via merger & acquisition given the current fragmented industry landscape. Over 80% of the country’s current 55k telco towers are owned by telecom players while the remaining 10k towers are owned by the independent tower companies. SEATH is the larges independent base transceivers' station (BTS) owner in Vietnam, with 1,938 (accounting for c.19% of independent tower market share telecommunications towers geographically dispersed throughou Vietnam. The towers are backed by long-term lease rentals (c.5-10 years) from mobile network operators in Vietnam (i.e. MobiFone VinaPhone, and Gmobile). The tenancy ratio of SEATH group is a 1.25x and expected to improve to at least 1.27x (vs. the industry average of <1.2x) by end-CY16. SEATH has achieved an annua turnover of RM46-49m over the past three financial years with ne profit of RM7.2-7.6m. Moving forward, we understand tha management expects SEATH to record c.USD10-12m turnover pe annum with c.50% EBITDA margin.

Source: Kenanga Research - 13 Oct 2016