Summary

• In-line with our expectation. OSK registered core PATAMI of RM131.0m in 2Q23, increasing by 13.9% QoQ and 23.3% YoY, respectively, bringing the sum of 1H23’s core earnings to RM246.1m (+27.9% YoY). The results came in within our expectation at 50.8% of RM484.1m, but it was above the consensus estimates at 56.3%.

• QoQ. The core net profit rose 13.9% to RM131.0m, thanks to the improvement in all the business segments except for the hospitality segment – staying flat for the quarter.

• YoY. As compared to 2Q22, the core net profit increased 23.3%, supported by the improved performance in the Financial Services & Investment Holding (due to expanded loan book) and Industries Segments (higher sales from the delivery of cables and IBS wall panel to customers, margins improved as material prices stabilised). Meanwhile, the performance within the Property, Construction and Hospitality segments were slightly lower.

• YTD. For 1H23, the cumulative core net earnings gained 27.9% YoY as we noticed the improvement within the Financial Services & Investment Holding (due to the growth in the loans book to RM1.5bn vs RM932.7m as of 1H22) and the Industries segments.

• Outlook. OSK’s property development unbilled sales of approximately RM1.1bn will sustain earnings visibility over the next 1-2 years. Also, we believe the 1,993 acres of landbank (as at end-Jun23) with an estimated gross development value (GDV) of RM15.5bn should provide earnings sustainability over the long run. The construction segment will be anchored by an outstanding orderbook of RM353.6m to be recognised progressively. Meanwhile, we think the recovery the tourism activities may lend support to the hospitality segment following the reopening of international borders in China since Jan-2023.

Valuation & Recommendation

• Given that the reported earnings came in within expectations, we made no changes to our forecast. We re-iterate 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 Aug 2023