OCK’s  1H14  results  were  broadly  in  line  with  our  expectations.  We expect  a much stronger 2H  as  new projects  kickstart  and  the company recognises  maiden  revenue  from  its  Indonesian  acquisition. Mobilisation costs squeezed margins  slightly  in 2Q14 but  we think this is  necessary  groundwork  for  the  execution  of  new  projects  in  2H14. Maintain BUY, with an unchanged FV of MYR1.65.

Broadly  in  line.  OCK  Group  (OCK)’s  1H14  net  profit  of  MYR6.1m (+27.1% y-o-y) contributed  30% to our full-year estimates.  Nonetheless, we  deem  the  results  broadly  in  line  as  we  anticipate  OCK  to  begin recognising revenue from a major cellco for maintenance work involving 4,000 telco sites beginning 3Q14. In addition,  the company should beginconsolidating  revenue  from  its  recent  acquisition  of  PT  Putra  Mulia Telecommunication  (PMT),  a  telco  site  maintenance  company  in Indonesia,  also  some  time  in  3Q14,  upon  securing  shareholders’ approval at an EGM to be held on 2 Sept.

Building up for 2H14.  Y-o-y,  2Q14 revenue  jumped  30.4% mainly due to more  execution work required by mobile operators  for telco network services.  OCK’s  EBIT  margin,  however,  fell  1.8ppts  to  13.4%  due  to mobilisation  costs  in  preparation  for  the  abovementioned  telco  site maintenance  work.  This,  coupled  with  a  higher  effective  tax  rate  of 25.9% (2Q13: 25.0%), led to 2Q14 net profit growing at a slower 15.3%.

News  flow  should  pick  up  in  coming  weeks.  While  the  Malaysian Communications  and  Multimedia  Commission  (MCMC)  has  taken  its time with regard  to the award of the 1,000 new telco towers to be built (1stphase will involve 400 sites), we gather from our channel checks that the award may take place some time next month. 

Forecasts. Maintained. 

Investment  case.  We  maintain  our  BUY  call  on  OCK,  with  an unchanged  TP of MYR1.65,  based on a target  FY15  P/E of 18.5x.  We like  OCK  for  its:  i)  strong  growth  prospects,  ii)  diversification  into  less developed foreign markets, iii) growing  recurring revenue base, and iv) above-industry average ROE.

Source: RHB