Summary

• We attended two site visits earlier this week at OSK Holdings Bhd’s (OSK) on-going property development projects located at (i) Iringan Bayu, Seremban and (ii) Shorea Park, Puchong and we came away feeling re-assured over their respective developments progress. Both Phase 1 of Iringan Bayu and Shorea Park are largely on track for sequential rollout of new phases over the foreseeable future after having achieved commendable take-up rates in their previous launches.

• Under Phase 1 of Iringan Bayu (Appendix 1), there is balance of approximately 170- ac. of land to be developed over the next 5-6 years before moving on to Phase 2, whereby the land located adjacent to Phase 1. We believe that the gradual and prudent strategy to perform sequential launches which aims to prevent large number of unsold units will also ensure long-term sustainable income and keep cash flow at a healthy level.

• Overall take up rate at Iringan Bayu at present remains healthy at approximately 90%, while Phase 8B2 with a GDV valued at RM40.6m was launched in 1Q22. We reckon that the demand for Iringan Bayu township development will be driven by the 22-ac. wetland park that offers 24 amenities that is catered to individuals across all age demographics such as integrated children playground, wetland trail, jogging track, bicycle track and among others. Meanwhile, the wetland park also takes into account of ESG initiative whereby night lights are powered through solar energy.

• We gather that average selling prices per square feet (ASP/sqf) is relatively competitive against neighbouring township developments. In bid to keep price at affordable levels, architectural houses designs and exterior façade for all types of units are pretty generic as part of raw material costs control measure. We also note that subsequent launches may continue to see slight step-up in prices that will keep margins relatively intact.

• For Shorea Park, Puchong (Appendix 2) that sits on 22.8-ac. freehold land with a total GDV of RM1.4bn over 4 phases, Phase 1 touted as MIRA (comprise 908 units of service apartments housed in two towers of 31-storey) provides practical layouts between 550-1011-sqf (1-4 bedrooms) with affordable entry price from RM250,000. The aforementioned phase that offers 30 facilities was launched in 3Q21 received decent take-up rate at 60-70%, despite experiencing hiccups as Selangor only moved into the Phase 4 under the National Recovery Plan in mid-October 2021.

• Following the positive response under Phase 1 and recognising that demand is skewing toward larger units, OSK aims to launch Tower A of Phase 2 known as ANYA in 2H22 that offers larger units between 560-1,389sqf (1+1 to 4 bedrooms) which include dual key concept for multi-generation living.

• All-in-all, other on-going developments such as Melbourne Square, Sungai Petani at Kedah and on-going construction of YOU City III at Cheras is progressing well with unbilled sales of RM900.0m to be recognised progressively. Moving forward, OSK’s balance land bank of 1,967-ac. with an estimated GDV of RM14.7bn will provide long-term earnings visibility for the property development segment.

• In the meantime, we gather that there would be some mild indirect impact from potentially lower contribution of share of profit from RHB following the implementation of Cukai Makmur. Despite that, we reckon that it will be cushioned by the expectation of overall improvement from OSK entities in FY22f.

Valuation & Recommendation

• We made no changes to our earnings forecast with property development and sales are progressing well. We maintained our BUY recommendation on OSK with an unchanged target price of RM1.41.

• We adopted a sum-of-parts valuation by pegging 0.8x to its financial services and property development book value, while the construction, industries & hospitality segments are valued through P/E multiple of 9.0x based on their earnings potential in FY23f. The discount to its book value in both the capital financing and property development is to reflect the OSK smaller scale business against pure-play property and financial services players.

• Risks to our recommendation include weaker-than-expected property sales which may put a temporary brake onto the progress of future launches. Potential default by their borrowers may result in slower contribution from the capital financing business segment.

Source: Mplus Research - 23 Jun 2022