Highlights

Reuters report that EPF is considering privatizing RHB Cap which may create excitement in sentiment towards the latter.

This excitement could spill over to OSK given that it owns 9.82% of RHB Cap and current RHB Cap share price of RM8.51 is already higher than its entry price of RM7.36. Moreover, if there is a privatization exercise, the offer price for RHB Cap is likely to be significantly higher than current price to ensure success (especially after several recent failed privatization efforts) which will greatly benefit OSK. The only caveat is if OSK decided not to distribute the proceeds from the privatization.

Although share price has appreciated since our Not Rated report dated 12 Apr 2013, OSK was and still is trading at a discount to our simple SOP estimate of RM2.47. At current price, it is at an implied 37% discount to RHB Cap.

Despite the potential M&A excitement in RHB Cap, we still believe that fundamentally, the stock’s discount valuation gap with peers should narrow (please see separate report on RHB Cap on the same date). This would further enhance OSK’s values.

Hence, investors who find value in OSK should focus on the fundamental valuations and treat any privatization of RHB Cap as a bonus.

Catalysts

• Significantly cheaper proxy to RHB Cap at 37% discount.
• Plaza OSK (RM157m or 16 sen per share), adjacent land (RM149m or 15 sen per share) as well as other assets and businesses free.
• Development of land adjacent to Plaza OSK and/or REIT to unlock values.
• Potential distribution of dividend from RHB Cap provides decent yields.

Risks

No plans to unlock values or pay dividend.

Forecasts

Not Applicable.

Rating

NOT RATED

Positives – Deep values as shareholders get huge discount to its stake in RHB Cap as well as the two major properties. Alternatively, it is a significantly cheaper proxy to RHB Cap.

Negatives – no plans to unlock values or pay dividend.

Valuation

Assuming a simple SOP calculation and a 20% holding company discount, the company should be worth RM1.98. Note that our SOP is based on RHB Cap’s current market price. If we use HLIB’s target price for RHB Cap of RM10.08, OSK’s SOP would increase to RM2.87 and indicative value of the company, after a 20% discount would be RM2.29.

Source: Hong Leong Investment Bank Research- 24 Jun 2013