Summary

• Within expectations. In 4QFY23, OSK Holdings Berhad (OSK) recorded core PATMI of RM97.8m (-20.5% QoQ, -19.4% YoY), bringing the sum of the core PATMI for FY23 to RM467.0m (+9.3% YoY). The core PATMI came in within expectations, accounting to 96.5% and 97.1% of ours and consensus estimates. OSK announced 4.0 sen dividend for the quarter, translating to 7.0 sen (FY22: 6.0 sen) for FY23.

• QoQ. Core PATMI declined 20.5% QoQ as improvements in the Property, Construction, Capital Financing Division segments were offset by softer performance in the Industries, Hospitality and Investment Holding segments amid (i) lower production overhead absorption rate and factory utilization rate, (ii) additional depreciation charged on completion of the first phase renovation at Swiss Garden Beach Resort Kuantan and (iii) lower profit recorded by RHB group, respectively. Also, the tax expense was higher at RM42.0m as compared to RM18.6m in 3Q23 due to the non-deductibility of certain expenses and losses in certain subsidiaries that are not available to offset against taxable profits in other subsidiaries within the Group.

• YoY. The core PATMI fell 19.4% YoY as all the business segments generated higher revenue and profits except for the Financial Services & Investment Holdings segments, no thanks to lower share of profit of RHB Group.

• YTD. On the full year basis, all the business segments gained strength with the core PATMI stood at RM467.0m (+9.3% YoY).

• Outlook. Going forward, the Property segment will roll out more launches and the Group’s unbilled sales stood at RM1.2bn with minimal unsold completed stocks. Total land bank measured at 1,977 acres with GDV of RM15.1bn will remain as one of the key contributors to the Group’s performance. Meanwhile, the Construction segment has an outstanding order book of RM389.6m as at FY23 and the Industries segment is expected to perform well into FY24 with its strong order book. Also, the Hospitality segment should benefit from the visa-free entry to Malaysia granted to passport holders of China and India since Dec-2023.

Valuation & Recommendation

• Forecast. Despite the core PATMI came in within expectations, we revise the FY24- 25f earnings forecast lower at RM474-503m, factor in lower profits from RHB.

• Downgrade to HOLD with revised TP of RM1.49. We downgrade OSK to HOLD (from BUY) as they have rallied since last quarter, but the TP is raised higher to RM1.49 (2.9% upside) as we roll over to FY24f. We adopt 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 FY24f. 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.

• Investment risks 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 2024