Summary

• Within expectations. In 3QFY23, OSK Holdings Berhad (OSK) registered core earnings at RM123.0m (-6.1% QoQ, +8.5% YoY), bringing the sum of the core net profit for 9M23 to RM369.2m (+20.7% YoY). The core earnings came in within expectations, accounting to 76.3% and 80.6% of ours (RM484.1m) and consensus (RM458.0m) estimates. No dividend was announced for the quarter.

• QoQ. Core earnings contracted 6.1% QoQ, despite the improvements across all the business segments with the exception of Financial Services & Investment Holdings Segment due to the decline in share of profit from RHB Group. The Property segment noticed a growth in the rental revenue as well as increase in occupancy rates, while the Industries segment was underpinned by strong sales and higher factory utilization rate and production efficiency through enhanced control over wastage and machine downtime. Also, the Hospitality segment achieved solid improvement due to continuous strong demand from local holiday makers and corporate meetings and events activities.

• YoY. The core earnings rose 8.5% YoY as all the business segments generated higher revenue and profits. Meanwhile, the Property segment recorded a decline in earnings where (i) YouCity III was at final stage, thus lower profit contribution as compared to 3Q22 and (ii) expenses incurred on sales and marketing for Phase 2, BLVD in MSQ. Besides, the Construction segment had a softer performance due to lower realization of profit from internal projects.

• YTD. All the business segments gained momentum with the core earnings stood at RM369.2m (+20.7% YoY), supported by the Industries and Financial Services & Investment Holding, with the pre-tax profit gained more than 100% and 24%, respectively.

• Outlook. Going forward, the Property Development Division will continue to launch new phases in its townships. Over in Melbourne, Australia, MSQ has officially launched Phase 2, namely BLVD in Oct-23, with encouraging take-up rate of about 40%. For the Group’s effective unbilled sales stood at RM1.2bn with minimal unsold completed stocks. The group has a total land bank measured at 1,994 acres with estimated effective GDV segment of RM15.5bn. Meanwhile, the construction segment has current outstanding order book which stood at RM319.m as at Sep- 2023. Also, the Industries segment is expected to perform well for the remaining FY23 with its strong order book. Besides, the Hospitality segment is likely to benefit from the year-end holiday seasons.

Valuation & Recommendation

• Forecast unchanged. Given that the core earnings came in within expectations, we have maintained the core earnings forecast at RM484.1-525.8m for FY23-24f.

• Maintained BUY with TP at RM1.41. We maintained BUY on OSK with a TP of RM1.41 (15.6% upside). 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.

• 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 Nov 2023