Summary

• OSK Holdings Bhd’s (OSK) 3QFY22 net profit climbed 41.9% YoY to RM113.4m, mainly from higher contribution of (i) property development and industries segments, (ii) hospitality segment returned to the black, (iii) higher income from capital financing segment and (iv) increase in contribution from RHB Group. Revenue for the quarter added 58.2% YoY to RM347.1m.

• For 9MFY22, cumulative net profit rose 2.0% YoY to RM305.9m is largely in line, making up to 73.9% of our forecasted net profit of RM414.1m. We reckon that earnings stability is well ensured from both the property and capital financing business segments.

• With approximately RM266.0m worth of property sales recorded during the quarter, 9MFY22 sales at RM744.0m is largely on track to meet our expectations of RM1.00bn for FY22f. Moving forward, OSK’s property development unbilled sales of approximately RM1.04bn (slightly up from RM976.0m recorded as at end-2QFY22) will sustain earnings visibility over the next 18-24 months.

• Elsewhere, occupancy rates of Plaza OSK, Faber Towers and Atria Shopping Gallery, all saw minor improvement in occupancy rates. Meanwhile, the construction segment will be supported by an outstanding orderbook of RM343.0m that will be recognised progressively and will be replenished from new internal property projects launches. Loan portfolio continues to demonstrate improvement to RM1.14bn, mainly supported by growth from Australia operations.

• The hospitality segment was boosted by the normalising of tourism activities, albeit it’s still below pre-Covid level. Nevertheless, we are sanguine on the re-opening of DoubleTree by Hilton Damai Laut Resort, a 294-room beachfront resort in mid September 2022 to support the hospitality segment portfolio.

• Despite the rising interest rates environment, we reckon that demand for low to mid cost housing projects may stay firm, following certain incentives such as 75.0% of the stamp duty will be waived for first-time homebuyers for properties worth RM500,000 to RM1.0m dished out under Budget 2023. Although there is a new government in helm, we think that measures to support the property sectors will remain in the big picture under the re-tabling of Budget 2023.

Valuation & Recommendation

• Given that the reported earnings came in within expectations, we made no changes to our forecast. 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 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 - 30 Nov 2022