Summary

• OSK Holdings Bhd’s (OSK) 4QFY22 net profit added 23.4% YoY to RM121.3m, driven by higher contribution from the property development and hospitality segments. Revenue for the quarter gained 5.8% YoY to RM332.7m. A final dividend of 4.0 sen per share, subject to shareholders’ approvals in the forthcoming AGM in April 2023.

• For FY22, cumulative net profit that rose 7.3% YoY to RM427.2m came in line; making up to 103.2% of our forecasted net profit of RM414.1m. We reckon that earnings growth in FY23f will be mainly supported by both the property and capital financing business segments.

• Moving forward, OSK’s property development unbilled sales of approximately RM1.00bn will sustain earnings visibility over the next 18-24 months. We have penciled RM1.00bn of property sales in FY23f, backed by several upcoming highrise developments across Klang Valley and the on-going 2 township developments. Meanwhile, their 2,003-ac of landbank will ensure earnings sustainability over the long run, backed by the strong historical track record of take-up rates.

• The construction segment will be supported by an outstanding orderbook of RM460.9m (from internal property projects) to be recognised progressively. We gather that loan portfolio continues to demonstrate stability at RM1.08bn (slightly down from RM1.14bn recorded at end-3QFY22). We expected further improvement moving into FY23f, backed by the progressive products offering to tailor the market’s demand and also improved contribution from Australia.

• Recovery trend in tourism activities will continue to lend support towards the hospitality segment. The aforementioned segment may stay in the black throughout FY23, anchored by better occupancy rates, coupled with the re-opening of DoubleTree by Hilton Damai Laut Resort in September 2022, which has garnered positive response.

• Following the re-tabling of Budget 2023, we reckon that demand for housing projects will stay firm, particularly for low-to-mid range units. The extension of stamp duty reduction of 75.0% for properties priced between RM500,001-1,000,000 bodes well for OSK as majority of the group’s units under the property portfolio falls into the aforementioned category.

Valuation & Recommendation

• Given that the reported earnings came in within expectations, we made no changes to our forecast. We introduced our FY25f forecast with net profit expected to register at RM539.9m (+2.7% YoY). Consequently, 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 - 28 Feb 2023