Our optimistic view on OCK remains unchanged despite revising our FY17E PATAMI by -5%, after the 4Q16 results’ briefing. OCK is poised to deliver a strong 3-year (2015-18) core PATAMI CAGR of 22%, underpinned by its enlarged towerco assets. Maintain OUTPERFORM call with unchanged TP of RM0.96, based on DCF valuation (WACC: 9.1%, TG: 1.5%).

Solid closing for FY16. OCK reported a strong revenue growth of 29% YoY (to RM407m) in FY16 with EBITDA advancing 28% YoY, in tandem with its top-line performance. Its PATAMI, however, recorded lower growth of 0.8% YoY (to RM25.8m) as a result of forex loss of RM3.2m and under-provision of prior year taxes of RM1.9m. Stripping-off these EI items, its normalised core PATAMI would have grown 40% YoY to RM31m. Regional businesses accounted for c.20% of the group’s total revenue in FY16 as compared to 17% a year ago. OCK Yangon’s tower business, meanwhile, contributed its maiden revenue of RM6.7m (from c.600 revenue generating sites) since 2H16 and recorded a PAT of c.RM1m. Dividend-wise, while OCK did not recommend any dividend in conjunction with its 4Q16 result release, the group does not discount that it may reward its shareholders in the later stage.

Full towers delivery target deferred to 2Q17. OCK has completed and handed over 604 sites to Telenor Myanmar as of mid-Feb 2017 and expects to complete all 920 towers by 2Q17 (from initial target of 1Q17 followed by more detailed site surveys conducted by Telenor Myanmar, which could lead to the remaining towers being built in more strategic city-centric locations). The changes could yield an advantage for OCK as those sites could provide good co-location potential and attract additional tenants in the future. We, however, are taking a more prudent approach and only expect the group to complete the towers' handover by 3Q17 in our financial model. Besides, we also understand that discussions of the long-term lease have commenced with Myanmar Post and Telecommunications (MPT) on co-locations, which could further enhance tenancies moving forward, if successful. Note that, Telenor’s exclusivity on site will expire after the two-month handover. All the telecommunication towers have installed sufficient specification to cater for three players. The Myanmar project is expected to contribute c.RM60m revenue per annum (based on a tenancy ratio of 1.0x) with a lucrative targeted EBITDA margin of c.60%. Should OCK Yangon manage to improve the tenancy ratio, it would provide a positive catalyst to OCK’s forward earnings thanks to the lucrative margin contribution.

Vietnam tower business. OCK has completed the acquisition of 60% of SEATH at 8.0x EV/EBITDA multiple for USD50m by midJanuary 2017. With 1,938 telco towers backed by long-term lease rentals and tenancy ratio of 1.27x, we estimate that the unit will contribute RM15-17m EBITDA (accounting c.14% to OCK Group) in FY17-18. Besides, we also gather than SEATH is aiming to increase its asset base by additional 300-400 sites per annum with selfgenerated fund. To recap, SEATH is the largest independent base transceivers station (BTS) owner in Vietnam, with 1,938 (accounting for c.19% of independent tower market share) telecommunications towers geographically dispersed throughout 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).

Tweaked FY17E PATAMI by -5% after re-aligning Myanmar towers’ delivery timetable and some house-keeping. Meanwhile, we also take this opportunity to introduce our FY18 numbers.

Source: Kenanga Research - 1 Mar 2017