OSK: Charge!

Cable, IBS and capital financing divisions faring well. We maintain a positive outlook on OSK, expecting increasing interest in the stock due to the robust performance of its business segments, particularly in capital financing and industries. These segments are demonstrating strong growth and are poised to play a more significant role in contributing to the group's earnings in the future. Notably, OSK's cable and IBS businesses are thriving, with the former operating close to its practical limit at approximately 85% utilization rate, driven by strong demand from the private sector, including data centers, solar farms, and industries. The IBS segment has also witnessed a substantial increase in utilization rate from 30% at the end of 2022 to the current 67%, with further growth anticipated as local developers increasingly adopt IBS in response to the construction industry's heightened focus on decarbonisation. In preparation for sustained demand, OSK is actively expanding its cable and IBS segments' capacity by 20-25% and 15%, respectively, by the end of 2024 and 2Q24.

Turning to the capital financing division, the positive momentum observed in 9M23 with a YoY increase of 33.3% is expected to continue, driven by the acquisition of the Angkasa license. Formerly concentrated on civil servant financing in the East Malaysia region through a partnership with Petronesa, the acquisition of the Angkasa license represents a strategic move for OSK, enabling a faster expansion pace, particularly focusing on the peninsular region and thereby enhancing its geographical presence. With Malaysia boasting a substantial pool of over 1.7m civil servants, OSK is well-positioned to tap into this a vast and promising market.

Higher high incoming. Following our successful technical buy call on OSK dated October 27, 2023 (report), OSK is currently trading one bid away its 52-week high level of RM1.32. Taking cue from the bullish indicators and considering the formation of higher highs, we anticipate the bullish momentum to persist, potentially propelling the price towards the RM1.37-1.46-1.50 region. Cut loss at RM1.19.

Collection range: RM1.28-1.29-1.31

Upside targets: RM1.37-1.46-1.50

Cut loss: RM1.19

Source: Hong Leong Investment Bank Research - 4 Jan 2024