OCK: Core Earnings Fall Below Estimates, BUY Rating Maintained Despite Target Price Revision

The company reported a core net profit of RM5.9 million for the first quarter of fiscal year 2026 (1QFY26), a significant 44% year-on-year decline. This figure fell short of both PhillipCapital’s and consensus estimates, accounting for only 13% and 14% of their respective full-year forecasts. Revenue for the quarter also saw a 5% year-on-year decrease.

Performance Review and Key Drivers

The earnings shortfall was primarily attributed to higher-than-expected minority interests. Quarterly revenue was dragged down by weaker contributions from the Telecommunications Network Services (TNS) segment, which declined by 11%, and the trading segment, which plummeted by 73%. Despite the revenue pressures, the company demonstrated strong cost management, improving its EBITDA margin by 4.5 percentage points year-on-year due to lower operating costs.

Sequentially, while revenue declined by 15% quarter-on-quarter due to softer performance across all segments, core earnings saw a 4% improvement. This sequential growth was driven by a lower effective tax rate, a benefit from deferred tax following SEATH’s 350-tower handover in the previous quarter, alongside continued lower operating costs contributing to a 3-percentage-point increase in EBITDA margin to 32.3%.

Future Outlook and Risks

Looking ahead, PhillipCapital anticipates FY26E earnings to be bolstered by several key factors. These include stronger momentum in 5G projects and the ongoing rollout of JENDELA Phase 2. The company is also well-positioned to capitalize on the government’s RM780 million Budget 2026 allocation aimed at expanding broadband coverage across 2,700 new sites, with contract deployments expected to commence in 1QCY26 and ramp up from the second half of FY26. A substantial RM1 billion tender pipeline further underpins the positive earnings outlook.

However, key risks identified include unexpected delays in project rollout and execution, slower-than-expected expansion of the tower portfolio, potential weaker margins, and adverse regulatory changes.

Analyst Recommendation

PhillipCapital has maintained a “BUY” rating on the company, although it has revised its 12-month target price downwards to RM0.57 from the previous RM0.66. This revision follows a 26-34% cut in FY26-28E earnings per share (EPS) estimates, primarily reflecting higher minority-interest assumptions. The firm continues to favor the company due to its rising 5G-driven earnings, strong visibility from its 60-65% recurring income, and its strategic position as a beneficiary of MCMC initiatives.