1Q17 performance came in within expectations. No dividend was declared as expected. Moving forward, we expect OCK to continue benefiting from the rapid networks expansion projects locally as well as seeing higher contribution from its overseas ventures. We made no changes to our FY17/FY18E 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%).

A solid start. 1Q17 PATAMI of RM4.7m (+27% YoY) came in within expectations at 12.9%/13.1% of our/market consensus full-year estimate. The latest quarterly results are within the historical 1Q contribution of c.12%-15% 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 0.4 sen DPS, translating into a dividend yield of 0.4%.

YoY, 1Q17 revenue soared to RM107m (+36%) as the higher telecommunication network services (“TNS”, +55% to RM95m, mainly underpinned by its lease revenue, particularly its newly completed sites in Myanmar (handed over 610 sites as of early May), and the acquisition of SEATH (with 1,983 revenue generating sites) in Vietnam) contribution was enough to offset the lower performance of other businesses. PBT advanced by 59% to RM9m as a result of higher turnover and better margins recorded in its TNS and Green Energy segments.

QoQ, 1Q17 turnover fell by 6%, largely due to the lower contribution from Trading (-60% to RM1.4m) and M&E Engineering services (-74% to RM0.9m) as a result of slower contracting work during the quarter. Despite recording a mid-single digit drop in its top-line, PBT reduced by 41% with margin narrowing to 8.5% (vs. 13.6% in the preceding quarter), no thanks to the lower GP margin as well as the absence of unrealised forex gain.

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 build-own-and-lease towers and acquiring existing tower sites operators in ASEAN countries. OCK has inked a long-term agreement with Myanmar Post and Telecommunications (as a second tenant for its towers in Myanmar) recently on co-locations for its 100 sites as well as improving the tenancy ratio to 1.15x. 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 (WACC: 9.1%; TG: 1.5%) for now, pending the analysts’ briefing today. Having said that, we are likely to tweak our FY17E earnings forecast marginally post house-keeping. 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 - 31 May 2017