Summary

• Within expectations. For 2QFY24, OSK registered a core PATMI of RM128.7m (+4.7% QoQ, -1.8% YoY), bringing the 1H24 core PATMI to RM251.6m (+2.2% YoY). The results were in line with expectations, accounting for 53.1% and 50.0% of ours and consensus estimates. OSK also declared 3.0 sen dividend for the quarter.

• QoQ. Profitability in the Property, Industries, and Financial Services segments were slightly lower but were offset by the Investment Holding Segment, mainly due to the contribution by RHB Group, where pre-tax profit stood at RM73.0m (+7% QoQ). Meanwhile, the Hospitality segment improved in 2Q24, driven by higher occupancy rates and average room rates, supported by the demand for local tourism and events after the Ramadan season in 1Q24.

• YoY. Despite lower revenue in the Property segment at RM211.9m, pre-tax profit increased by 8% to RM36.6m. The Financial Services segment saw a 20% rise in pre-tax profit driven by strategic business expansion in Malaysia (OSK Syariah Capital) and Australia (OSK Capital). However, overall profits were dragged by the Industries segment, where both the cables and IBS wall panels segments were affected by slower demand from major customers.

• YTD. The Property, Hospitality, and Financial Services segments showed growth in pre-tax profits respectively, driven by similar factors as above.

• Outlook. We expect OSK to perform better in 2H24, supported by growth in the Property segment, driven by its unbilled sales of RM1.6m. The group also holds a land bank of 1,883 acres, with an estimated GDV of RM15.3bn. With strong demand for cables and IBS wall panels amid robust construction activities supported by NETR and data center projects, we expect Industries segment may pick up going forward. In the Hospitality segment, the completion of upgrades at Swiss-Garden Beach Resort Kuantan and the year-end holiday season should boost occupancy rates. Meanwhile, the Financial Services segment remains stable, with the loan portfolio growing to RM1.8bn as of 1H24, up from RM1.5bn in 1H23.

Valuation & Recommendation

• Forecast. Unchanged as its core PATMI came in within our expectations.

• 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 property development segments. We believe the property segment could benefit from an upcycle 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, reflecting their earnings potential in FY24f.

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

Source: Mplus Research - 28 Aug 2024