Summary

• To recap. For 1QFY24, OSK recorded core PATMI of RM122.9m (+25.7% QoQ,+6.8% YoY). The core PATMI came in within expectations, accounting to 25.9% and24.6% of ours and consensus estimates. We recently met with the Group CFO andare optimistic about OSK's future prospects.

• Financial Services. The Capital Financing segment continues to strengthen, withthe loan portfolio growing at a 17% CAGR, reaching RM1.72bn in 1Q24. We believethere are further opportunities in OSK Cap Australia and the Syariah capitalsegments. The former has significant potential in the small real estate sector,where financing is often scarce. Additionally, the recent announcement by PrimeMinister Datuk Seri Anwar Ibrahim regarding a 7-15% pay raise for civil servantsshould benefit OSK's capital financing segment. We also expect dividend incomefrom RHB to increase over the long term.

• Property development and investment. The estimated total GDV under the propertysegment stands at RM1.7bn, higher than FY23 due to delayed projects being rolledover into FY24. Unsold GDV and unbilled sales are at RM1.31bn and RM1.06bn,respectively. With higher GDV in 2024, we expect improved earnings growth fromthis division. OSK will also focus on land banking activities in the northern region.

• Construction and industries. The outstanding order book stood at RM500m as of1Q24, providing earnings visibility for the next 1-2 years. OSK produces low andmedium-voltage copper cables and aluminum fire-resistant cables. With the risingdemand for data centers, renewable energy, and a focus on the National EnergyTransition Roadmap (NETR), we anticipate stronger demand for their products,leading to higher earnings. PBT growth in 2023 was remarkable, increasing fromRM10m in FY22 to RM35m.

• Hospitality. The turnaround in this segment is commendable, and we expect furtherupside as the Swiss-Garden Beach Resort Kuantan operates at full capacityfollowing its refurbishment.

Valuation & Recommendation

• Forecast. Unchanged.

• Maintain BUY with TP of RM1.96. The TP is based on a sum-of-parts valuation,applying a 1.0x multiple to the book value of the financial services and propertydevelopment segments. We believe the property segment could benefit from anupcycle in the sector amid rising demand for data centers. The construction,industries, and hospitality segments are valued at a P/E multiple of 9.0x, reflectingtheir earnings potential in FY24f.

• Investment risks include weaker-than-expected property sales, which could delayfuture launches, and potential defaults by borrowers, which may slow downcontributions from the capital financing business.

Source: Mplus Research - 21 Aug 2024