Riding the growing telecommunication wave in Myanmar. Telenor Myanmar has reverted c.120 coordinates (out of the remaining 280 sites under the initial build-and-lease contract (920 towers), which were held back by the Norwegian telco since 2H16 as a result of new coordinates planning) for new site build-ups. While Telenor Myanmar sites deployment appears to be slow, OCK has secured c.90 new co- location agreement with Myanmar Posts and Telecommunications (MPT) as a second tenant in April and Mytel as the third tenant in July (for c.70 sites). The tenancy ratio for the current 640 sites (including the co-locations) stood at 1.3x, a remarkable improvement from the 1.15x (with 610 sites) in the preceding quarter.

Besides, OCK has also secured a new leasing agreement from Mytel (Myanmar’s fourth/newest mobile operator) for new-build of 300 sites, to be delivered by end-CY17. Vietnam News Service has reported recently that Mytel (the JV between Vietnam’s Viettel (the largest telco from Vietnam) and the consortium of local ICT companies that make up Myanmar National Telecom Holding Public and Star High Public Company) plans to launch 4G-only services in the 1Q18 that cover 90% population after deploying nearly 7,200 base stations and 33k km of fiber. In view of Mytel’s rapid network expansion plan, we do not discount that OCK (as the key telco tower player in Myanmar) may benefit from the growing infrastructure wave.

Completed internal re-organisation, where OCK has streamlined the tower leasing business under OCK SEA Towers Ptd. Ltd. (Figure 1). The renewed group structure is set to allow the group to have more effective capital management in the future. We understand that the group is aiming to expand its tower portfolio further to 5k (from the current 2.8k) through organic and/or M&A activities.

Fine-tuned FY17/FY18E PATAMI by -3%/-2% respectively, after imputing higher depreciation and minority interest. 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.

Source: Kenanga Research - 05 Sep 2017