Summary

• Within expectations. For 1QFY24, OSK recorded core PATMI of RM97.8m (-20.5% QoQ, -19.4% YoY), bringing the sum of the core PATMI for FY23 to RM122.9m (+25.1% QoQ, +6.8% YoY). The core PATMI came in within expectations, accounting to 25.9% and 24.6% of ours and consensus estimates.

• QoQ. Despite the decline of the revenue for the quarter by -13.1%, core PATMI jumped 25.7% as the softer performance in Property, Industries and Hospitality was offset by the stronger profits coming from the Financial Services and Investment Holding segments due to higher interest income from the higher average loan portfolio recorded in 1Q24 and favorable contribution by RHB amounting to RM74.7m for the quarter.

• YoY. The core PATMI increased 6.8% in tandem with the rising revenue contributed by all the business segments except the Hospitality and Investment Holdings divisions.

• Outlook. Going forward, the Property segment will provide sustainable revenue with unbilled sales of RM1.1bn, while the Group’s total land bank of 1,898 acres with GDV of RM16.2bn will remain as one of the significant contributors to OSK’s performance. The Industries segment is expected to improve in 2H24 amid rising demand from data centers and utility companies. Besides, the Financial Services segment should perform better with the support of loan disbursements from various product offerings.

Valuation & Recommendation

• Forecast. Remain unchanged at RM474.3m and RM503.1m for FY24-25f.

• Upgrade to BUY with revised TP at RM1.96. We upgrade OSK to BUY (from Hold) and raise the TP higher to RM1.96 (18.1% upside) as we roll over to FY24f as we adopt a sum-of-parts valuation by pegging higher multiple of 1.0x (from 0.8x) to its financial services and property development book value as we believe the latter could be tagging the upcycle in the property sector amid the rising demand for data centers, while the construction, industries & hospitality segments are valued through P/E multiple of 9.0x based on their earnings potential in FY24f.

• 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 - 31 May 2024