OCK’s results exhibited the typical seasonal lull in 1Q15, with earnings momentum expected to ramp up in the successive quarters from the strong pipeline of site maintenance jobs and local LTE deployments. We remain upbeat on the stock but trim our TP to MYR1.06 (25% upside) to reflect a lower 16x target P/E on 2016F EPS (18.5x previously) that factors in the more cautious market environment. Maintain BUY.

• Seasonally weaker. OCK’s 1Q15 core earnings inched higher by 0.2% YoY to MYR3.1m but fell 58% QoQ on seasonality. Revenue contracted 6% QoQ (+53% YoY) while EBITDA fell 33%, against the high base of billings in 4Q14. Although making up less than 10% of our core earnings/13% of our EBITDA estimates, we consider the results to be in line, as earnings momentum should ramp up in successive quarters.
• TNS remains the key growth driver. Telco network services (TNS) revenue contribution narrowed to 66% from 75% in 4Q14 due to the more significant billing from a higher-margin customer in 4Q14, partially offset by the continued strong growth from 85%-owned PMT (its maintenance outfit in Indonesia) where the number of sites has trumped expectations (14,000 sites at end-1Q15). Regional revenue contribution widened to 17% in 1Q15 vs 9% in FY14, mainly driven by PMT, which contributed c.MYR7m in 1Q15 vs MYR7.6m in FY14.
• Overseas forays. We gather from management that negotiations with various parties/consortiums to expand into the lucrative towerco space in Indo-China (Myanmar and Vietnam) are still on-going. It is exploring alternative options, which may include potential M&As of existing towercos and related assets. While we are positive on OCK’s regional aspirations, there remain concerns over execution and funding capacity.
• Forecast & risks. We raise our FY15-FY17 core earnings by 9.8-12%on house-keeping adjustments and upon imputing a lower effective tax rate arising from the pioneer status award for a key subsidiary. Key risks on the stock are: i) the delay in contract awards, ii) lower-than-expected margins, iii) project execution, and iv) potential fund-raising.
• Maintain BUY. Our TP is nonetheless reduced slightly to MYR1.06 (from MYR1.11) as we ascribe a lower target PE of 16x (from 18.5x) on its 2016F EPS to factor in the more cautious market sentiment.