Despite delivering lower revenue in 1Q18, PATAMI came in within expectation due to higher-than-expected margin from its regional Opcos. We continue to like OCK for its attractive growth prospects and growing recurring revenue stream. No change in our FY18/19E numbers for now, pending an analysts’ briefing today. Our OUTPERFORM stock call and target price of RM0.950 are currently under review.

A solid start. 1Q18 PATAMI of RM5.1m (+8.6% YoY) came in within expectations at 18.6%/14.9% of our/market consensus full-year estimates. The latest quarterly results are within the historical 1Q contribution of c.14%-18% range of full-year results for the past three years. No dividend was declared, as expected.

YoY, 1Q18 revenue weakened by 8.5% to RM97.5m, mainly due to lower contribution from the telecommunication network services (“TNS”) segment as a result of the softer domestic sales. Despite tepid revenue, PBT merely declined by 3% to RM8.8m, thanks to better margin recorded in its regional Opcos as a result of more lease income from the region on the back of higher number of co-location sites. To date, regional revenue contributed 42.7% of the group’s total turnover vs. 37.6% a year ago. Noteworthy, the group’s Malaysia operation recorded its first LAT of RM0.13m in 1Q18 as a result of higher OPEX (mainly driven by higher administrative and staff costs) as well as interest expenses. Nevertheless, management believed the segment‘s performance is set to improve from 2Q onwards given various cost control initiatives (which include reducing the number of staff by c.10%) during the quarter.

QoQ, 1Q18 turnover was down from the seasonally high 4Q and lowered by 27% with negative contribution from all segments, except the Green Energy divisions. PBT, however, dipped slower by 21% as a result of better margin recorded in its TNS segment in 1Q18.

Outlook. The group is set to continue benefiting from the rapid network expansion plan undertaken by various telcos in the OpCos countries. We understand that the group seeks to venture into other Indo-China countries for greenfield/brownfield opportunities to own more telecommunication sites to achieve its vision of becoming an ASEAN Tower company and increase its recurring income stream. 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.

Under Review. We made no changes to our forecast and target price for now, pending an analysts’ briefing today. Having said that, we are likely to keep our FY18/19E earnings estimate largely unchanged in view of the moderate 1Q18 performance. Our current stock rating is OUTPERFORM with a target price of RM0.950 derived on DCF- methodology (WACC: 8.0%; TG: 1.5%).

Source: Kenanga Research - 31 May 2018