OSK Holdings Bhd’s (OSK) 1QFY23 net profit climbed 36.3% YoY to RM115.1m, driven by higher contribution from the property development and hospitality segments. Revenue for the quarter rose 8.7% YoY to RM333.2m.
The reported numbers came in line; making up to 23.8% of our forecasted net profit of RM484.1m and 26.4% of consensus forecast of RM436.0m. We reckon that the earnings growth in the subsequent quarters will be supported by (i) progressive billings of unbilled property sales (ii) steady income from capital financing and (iii) strategic investment in RHB Bank Bhd (10.24% equity stake).
OSK’s property development unbilled sales of approximately RM1.02bn will sustain earnings visibility over the next 18-24 months. Looking ahead, there are 4 projects with a total combined GDV of RM714.0m in the pipeline to be launched in 2H23, while phase 2 of Melbourne Square (MSQ) comprising 600 units of high-rise apartment with a total GDV of AUD650.0m was soft launched in April 2023.
We reckon that OSK’s 2,002-ac of landbank (as at end-1Q23) with an estimated gross development value (GDV) of RM16.20bn should ensure earnings sustainability over the long run. The group remains active in the lookout for potential land acquisitions adjacent to their existing 2 townships.
In 1QFY23, we gather that the loan portfolio stood at RM1.32bn with minimal non-performing loan ratio and backed by adequate security cover. Growth is expected to sustain following the launches of new products offerings and participating in fintech platform to widen its coverage.
The construction segment will be anchored by an outstanding orderbook of RM415.1m to be recognised progressively. While the property investment segment demonstrated stability in occupancy rate, the industries segment will be kept busy, operating at close to full capacity with planned production expansion on the cards.
We foresee that the recovery in tourism activities may continue to lend support to the hospitality segment. Domestic travelers led the recovery trend in 2022 and the re-opening of international borders in China may boost the tourism activities from 2023 onwards. With flight frequencies ramping up, Malaysia is targeting 16.1m international tourists in 2023.
Valuation & Recommendation
Given that the reported earnings came in within expectations, we made no changes to our forecast. We re-iterate our BUY recommendation on OSK with an unchanged target price of RM1.41.
We adopted a sum-of-parts valuation by pegging 0.8x to its financial services and property development book value, while the construction, industries & hospitality segments are valued through P/E multiple of 9.0x based on their earnings potential in FY23f. The discount to its book value in both the capital financing and property development is to reflect the OSK smaller scale business against pure-play property and financial services players.
Risks to our recommendation include weaker-than-expected property sales which may put a brake onto the progress of future launches. Potential default by their borrowers may result in slower contribution from the capital financing business segment.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....