We expect a seasonally stronger 2Q17 for the group, anchored by the fullquarter contribution from SEATH and recurring Myanmar tower lease rentals. OCK recently bagged a small order from Mytel for site deployment, with the latter also emerging as its third tenant. Our FY17- 19F core earnings drop by 5-9% after we factored in higher depreciation/capex and financing cost from the additional site rollout. This reduces our SOP-based TP to MYR1.01 (from MYR1.05, 12% upside, 11.7x FY18 EV/EBITDA). Maintain BUY.

Welcoming the third tenant in Myanmar. We understand OCK recently secured the third tenant in the form of Myanmar’s fourth/newest mobile operator, Mytel, for its tower leasing business. This adds to the earlier ~90 sites co-located for Myanmar Post and Telecommunications (MPT) on Telenor Myanmar (TML)’s towers. The agreement with Mytel also comprises 300 buildto-suit towers, to be delivered by end-2017. Similar to the earlier model with TML, OCK will own the towers with capex funded internally. We believe there is debt headroom (estimated capex of MYR80-90m), given the group’s net gearing of 0.6x in 1Q17. Mytel’s contracting job is timely, in our view, as it partly compensates for the delays in rolling out TML’s sites. According to media reports, Mytel plans to launch its mobile service in 2018 and is targeting rural areas (70% of population). It has allocated USD2bn to expand its network with the aim to reach 95% of the population by 2020.

Seasonally stronger 2Q17 anticipated. OCK is slated to release its 2Q17/1H17 results on 29 Aug. We expect seasonally stronger revenue/EBITDA QoQ/YoY, driven by the core telco network services (TNS) segment (over 80% of revenue). 2Q17 revenue is projected to grow by 20-30% QoQ (+12-20% YoY) while EBITDA is expected to rise by 25-35% QoQ (+74-85% YoY), off a low base in 1Q17. We expect the regional towerco business (Myanmar and Vietnam) to remain the key growth catalyst, driving a more than doubling of overseas revenue contribution to some 41% in 1H17 from 20% in FY16.

TML capex slows further in 2Q17, SEATH to see further ramp-up. TML’s capex intensity (capex/sales) has decelerated further to 7.4% in 2Q17 from 15.5% in 1QFY17 (FY16: 38%) based on Telenor Group’s (TEL OS, NR) 2Q17 results. This suggests that site deployments continued to be slow in 2Q17, likely hindering OCK’s site deployment progress for TML under the build-and-lease contract for 920 sites.

On a positive note, we gather that OCK recently received a fresh order for over 100 sites from TML. This represents part of the >200 sites retracted by TML last year, pending further reviews. We expect revenuegenerating sites in 2Q17 to be fairly similar, or a slight increase over the 615 in 1Q17.

There is also scope for its 60%-owned Southeast Asia Telecommunications Holdings (SEATH) to further strengthen its position as the largest independent towerco in Vietnam, and we do not rule out potential M&As involving smaller towercos.

Source: RHB Securities Research - 10 Aug 2017