OCK’s  results  were  broadly  in  line.  Maintain  BUY  and  MYR1.06  TP  (10.4% upside). 9M14  core profit  accounted for only 61%  of  our full-year forecast  but  we  expect  the  shortfall  to  be  made  up  for  in  4Q14  from PMT’s  maiden  contribution  and  higher  capex  spending  by  telcos.  We like OCK for:  i)  its  strong earnings prospects, ii) the focus on growing its recurring revenue base and iii) its emerging market exposure. 

Broadly within expectations.  OCK Group’s (OCK)  9M14 core earnings of MYR9.1m (+8.8% YoY) were expectedly short of our full-year forecastas  the  acquisition  of  PT  Mulia  Telecommunication  (PMT)  was  only reflected in 4Q14. While 3Q14 revenue grew a commendable 10% QoQ, EBITDA  fell  7%  from  higher  staff  cost  for  managed  services  works locally. 

Awaiting  the  USP  award.  Despite  the  close  of  the  tender  exercise  in 2Q14,  the  Malaysian  Communications  and  Multimedia  Commission (MCMC) has yet to award the first phase of the Timeline 3 (T3) Universal Service  Provisioning  (USP)  contract  for  the  construction  of  1,000  telco sites  in  rural  areas.  We  expect  OCK  to  clinch  a  portion  of  the  USP contract, being a front-runner for the project and its good execution track record in tower construction. 

LTE  contract. We  gather  from  management  that  it  recently  bagged  a sizeable frame contract from a local telco for the installation of 1,000 LTE sites, commencing in  1Q15.  The contract is expected to drive the  strong FY14-16 revenue CAGR of 43% anticipated from telco network services.   Forecast.  Our  earnings  forecast  remains  unchanged.  We  recently downgrade FY14 earnings forecast by 28.4% to reflect: i) the delay in the USP project, and ii) the consolidation  of PMT’s  earnings in 4Q14 (from the  previously  assumed  3Q13).  Key  downside  risks  to  earnings  are:  i) continued delays in the award of the USP project, and ii) weaker-thanexpected margins.

Maintain  BUY. We like  OCK  for  its  strong  earnings  growth  prospects, the focus on growing its recurring revenue base, and its exposure to less mature  but  high-growth  emerging  markets.  Our  TP  is  unchanged  at MYR1.06  (versus cum bonus TP of MYR1.59), which is  pegged to 18.5x FY15F EPS, offering a more than 10% upside from the current level.

Source: RHB