OSK reported 4Q22 core PATAMI of RM121.5m, bringing FY22’s sum to RM425.9m (+7% YoY). The result was above our expectation due to stronger than-expected contribution from its associate RHB. We increase our FY23/FY24 forecasts by 3.1%/2.9% as we input higher contribution from its capital financing and property segments. We remain positive on the group’s growth outlook for FY23 as we anticipate all its business segments to show steady improvement. Maintain BUY with an unchanged TP of RM1.42 based on 40% discount to SOP derived value of RM2.37. The stock is currently deep in value, with its current market cap trading below the value of its stake in RHB. The stock also provides a good projected FY23 dividend yield of 5.9%.

Well above our expectation. OSK reported 4Q22 core PATAMI of RM121.5m (+7.8% QoQ; +23.8% YoY), bringing FY22’s sum to RM425.9m (+7% YoY). The result was well above our expectation, making up 112.1% of our full year forecast. The positive deviation was mainly due to stronger-than-expected contribution from its associate RHB. FY22 core PATAMI was arrived at after excluding net EIs of +RM1.3m from PPE disposal gain of +RM1.3m and forex gain of RM11k.

Dividend. 4 sen, ex-date: 20 Apr 2023 (4Q21: 4 sen) FY22: 6 sen (FY21: 5 sen).

QoQ. Revenue declined by -4.1% (property: -7.3%, industries: -2.2%, hospitality +7%, financial services & others: +0.4%). Decline in property development revenue was due to lower sales. Despite a decline in revenue, core PATAMI increased by +7.8% due to higher share of profit from associate RHB of RM76.7m (+10.7%).

YoY. Revenue increased by +5.8% (property: -1.7%, industries: +22.1%, hospitality +57.4%, financial services & others: -3.6%). Increase in industries revenue was due to higher production and deliveries to customers, while hospitality saw a significant improvement due to better hotel occupancy rate and average room rate from recovery in domestic tourism and convention events as well as reopening of Double Tree Damai Laut Resort on 15 Sep 2022. Core PATAMI increased by +23.8% mainly due to rebound in hospitality PBT to RM0.9m (from -RM4.1m SPLY) as well as higher share of profit from associate RHB (+24.6%).

FY22. Revenue increased by +17.3% (property: +4.6%, industries: +43.2%, hospitality +1.4x, financial services & others: +13.2%). Increase in industries revenue was due to higher sales and productivity as a result of improvement in labour shortage situation. Hospitality improvement was due to same reason as mentioned in YoY paragraph above. Subsequently, core PATAMI increased by +7% as higher share of profit from RHB (+4.8%) was moderated by lower PBT from property (-17%) as a result of lower sales from its JV Australia project.

Property development. OSK recorded 4Q22 sales of RM202m, bringing FY22’s sum to RM946m (+11% YoY), representing 94.6% of its full year sales target of RM1bn. The group’s full year launch amounted to RM1.11bn (+25.8% YoY), representing 79.4% of its full year launch target of RM1.4bn. Unbilled sales as at 4Q22 stood at RM1bn (-3.4% QoQ), representing 1.38x cover of its FY22 property revenue.

For FY23, the group is setting sales target of RM1bn (+5.7% YoY) and launch target of c.RM2.1bn (+89% YoY). The launch pipeline comprises of RM1.3bn from Malaysia (see Figure #4) and AUD645m (OSK’s effective GDV: AUD262m or c.RM788m) from its Australia project.

Capital financing. Capital financing recorded 4Q22 PBT of RM16.2m (+5.9% QoQ; +13.3% YoY), bringing FY22’s sum to RM62.8m (+10.6% YoY). Loan portfolio as at 4Q22 stood at RM1.4bn (+23% QoQ; +42.9% YoY). The loan portfolio has grown substantially mainly driven by the growth from its Australia segment which has surged to RM318.6m (+6.4x YoY).

Outlook. The group’s FY22 results had recovered above its pre-pandemic level with core PATAMI at its highest level since 2016. We remain positive on the group’s growth outlook for FY23. This is supported by its property development segment anchored by (i) better sales from scale up in launches; and (ii) expedite in recognition of its sizeable unbilled sales from easing of labour shortage. For capital financing, the higher loan portfolio sum as at end-FY22 should contribute positively to its revenue. We see vast growth potential for its Australia and civil financing segments, while its conventional financing should also show steady improvement. Finally, the earnings contribution from RHB should also improve in FY23 given the absence of Prosperity Tax, while its elevated CET1 ratio indicates headroom for attractive dividend payout potential.

Forecasts. We increase our FY23/FY24 forecasts by 3.1%/2.9% as we input higher contribution from its capital financing (higher loan portfolio) and property (better progress billing) segments.

Maintain BUY with an unchanged TP of RM1.42 based on 40% discount to SOP derived value of RM2.37. The stock is currently deep in value, with its current market cap trading below the value of its stake in RHB, i.e. at 86.4% of its stake in RHB valued at RM1.16/share based on latest closing price. The stock also provides a good projected FY23 dividend yield of 5.9%. Given the strong earnings recorded for FY22 and the positive growth outlook especially from its property development and capital financing segments, the stock could potentially be re-rated as it gains investors’ focus.

Source: Hong Leong Investment Bank Research - 28 Feb 2023