FY16 PATAMI of RM25.8m came in within our, but below market, expectations. No dividend was declared during the quarter, which was a negative surprise to us. Moving forward, we expect OCK to continue benefitting from rapid networks expansion projects locally as well as higher contribution from its overseas ventures. We made no changes to our FY17 earnings forecasts for now, pending today’s briefing. Maintain OUTPERFORM call with an unchanged TP of RM0.96 based on DCF valuation (WACC: 9.1%, TG: 1.5%).

Spot-on. FY16 PATAMI of RM25.8m (+5.0% YoY) came in well-within our expectation at 100% but below market consensus full-year estimates (at 92%), which we believe was mainly due to lower-than-expected effective tax rate and/or non-controlling interests.

YoY, FY16 revenue soared to RM407m (+29%) on the back of higher telecommunication network services (“TNS”, +26% to RM340m, mainly underpinned by its regional businesses in Indonesia, Cambodia and Myanmar as well as higher contribution form contracting works in Malaysia) and Green Energy & Power Solution division’s contribution (+53% to RM37m). PBT was enhanced by 11% to RM42m as a result of higher turnover but partially mitigated by the pre-acquisition expenses of RM2.9m incurred for acquisition of SEATH in 4Q16. The acquisition was completed in mid-January 2017, and SEATH’s financial will be reflected in the group’s financials in FY17.

QoQ, 4Q16 turnover improved by 11%, mainly driven by the higher revenue contributions from TNS (9%), and Green Energy & Power Solution (11%) divisions. Despite recording a low double digit top-line growth, its PBT advanced by 34% with margin increasing by 280 bps to 13.6%, thanks to lower OPEX as a result of lesser administrative expenses.

Outlook. OCK is expected to continue benefiting from the rapid network expansion plan undertaken by the local major telcos. We understand that the group aims to grow its recurring revenue business via own-build towers and acquiring existing tower sites operators in ASEAN countries. 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 which is rapidly growing in demand.

Maintain OUTPERFORM call with unchanged DCF-driven target price of RM0.96 for now, pending the analysts’ briefing today. Having said that, we are likely to tweak our FY17E earnings forecast marginally post house- keeping. Maintain OUTPERFORM call with DCF-driven TP unchanged at RM0.96 (WACC: 9.1%; TG: 1.5%), implied FY17E PER of 23.8x. 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 activity.

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

Source: Kenanga Research - 28 Feb 2017