1H17 results came in within expectations and so was the absence of dividend. Moving forward, we expect OCK to continue benefiting from rapid networks expansion projects locally as well as higher contribution from its overseas ventures. We made no changes to our FY17/FY18E earnings forecasts for now, pending today’s briefing. Maintain MARKET PERFORM call with an unchanged TP of RM1.05 based on DCF valuation (WACC: 8.0%, TG: 1.5%).

Within expectations. 1H17 PATAMI of RM10.7m (+17% YoY) came in within expectations at 29%/30% of our/market consensus full-year estimates. The latest quarterly results were within the historical 1H contribution of c.29%-37% 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, 1H17 revenue improved by 17% to RM226m as the higher telecommunication network services (“TNS”) increased by 26% to RM196m, mainly underpinned by: (i) its lease revenue following newly completed sites in the Myanmar where it completed more than 600 telco towers and secured a new co-location agreement with the largest state-own telco operator, Myanmar Posts and Telecommunications (“MPT”), and (ii) the new towers acquired through acquisition of SEATH (with 1,983 revenue generating sites in Vietnam) contribution, which was enough to offset the lower performance of its other businesses. PBT meanwhile advanced by 36% to RM21m as a result of higher turnover and better margins recorded in its TNS and Green Energy segments. To date, its regional revenue has soared to contribute 35.8% of the group’s total turnover vs. 17.5% a year ago.

QoQ, 2Q17 turnover increased by 12%, with positive contribution by all segments; particularly driven by M&E Engineering services (soared by 413% to RM4.6m). PBT improved by a larger quantum of 26% on improved margin (+1.1%) as a result of higher forex gains and higher other income.

Outlook. OCK currently owns a tower portfolio of c.2.8k towers and expect 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 (in Myanmar) and acquiring existing tower site 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 MARKET PERFORM call with unchanged DCF-driven target price of RM1.05 (WACC: 8.0%; TG: 1.5%) for now, pending an 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 - 30 Aug 2017