OSK: Capital financing & industries lead the charge

Our recent meeting with the management has bolstered optimism about the group's future prospects, and we anticipate that its capital financing and industries will be at the forefront of this positive trajectory.

Capital Financing. To recap, in 2021, when OSK first ventured into the civil servant financing sector, it lacked the necessary Angkasa license. Consequently, it formed a partnership with Petronesa, a company already holding an Angkasa license. This strategic collaboration enabled OSK to disburse loans to civil servants, primarily in the East Malaysia region. In late 2022, OSK achieved a significant milestone by successfully obtaining its own Angkasa license. With this license in hand, the group commenced disbursing loans to civil servants from March 2023, this time focusing on the peninsular region, thereby expanding its geographical presence. The acquisition of the Angkasa license represents a pivotal lever for OSK, facilitating a faster pace of expansion. Considering Malaysia's substantial pool of over 1.7m civil servants, it is evident that OSK has a vast and promising addressable market for its services.

Industries. The Industries segment posted a robust PBT of RM19.2m in 1H23, marking an impressive 82.2% YoY increase. We anticipate that the Industries segment will further strengthen its earnings in 2H23, given the continued improvement in orders for both the cables and IBS segments. Particularly noteworthy is the significant upsurge in demand within the IBS segment this year, driven by a structural shift in the industry, leading to its widespread adoption. This surge can be attributed to several factors, including the escalation of wage costs and the industry's quest for a solution to the labor shortage challenges that became evident during the pandemic.

All in, we have BUY rating with a TP of RM1.73 in OSK. We believe the stock should gain increasing interest given that its own business segments, especially capital financing and industries are demonstrating strong growth and should play a bigger role in contributing to the group’s earnings moving forward.

Trading at support region. Technically, OSK is trading near its support region of RM1.14-1.17 levels, with indicators on the mend. A successful breakout above RM1.20 hurdle will spur the price toward RM1.27-1.34-1.37. Cut lost at RM1.09.

Collection range: RM1.14-1.16-1.18

Upside targets: RM1.27-1.34-1.37

Cut loss: RM1.09

Source: Hong Leong Investment Bank Research - 27 Oct 2023