Summary

• Above expectations. In 3QFY24, OSK recorded a core PATMI of RM137.2m (+6.6% QoQ, +11.5% YoY), bringing the 9M24 core PATMI to RM388.8m (+5.3% YoY). The results were slightly above expectations, accounting for 82.0% and 78.0% of ours and consensus estimates. Key deviations include higher-than-expectations revenue and share associates profits.

• YoY. OSK’s revenue and core PATMI grew 10.9% and 11.5% YoY, respectively as the business segments recorded positive growth.

1. The Industries segment’s revenue grew 26% due to the increased cable orders from private sector in the construction segment.
2. The Hospitality segment increased 13% due to better occupancy and room rates across all assets in particular Swiss-Garden Beach Resort Kuantan after the completion of its refurbishment of the room in Dec-2023.
3. The financial services segment recorded a 23% increase in revenue, supported by the growth in loan portfolio in both Malaysia and Australia (outstanding loan disbursed stood at RM1.82bn vs RM1.65bn in 3Q23).
4. The Investment Holding segment contributed RM82.4m pre-tax profit as compared to RM62.2m in 3Q23, due to higher contribution from RHB Group.
5. The Property segment recorded growth in revenue but decline in pre-tax profit due to sales and marketing costs were charged without significant revenue recognition for newly launched projects.

• QoQ. With the exception of Financial Services with show a slight decline of 1% in pre-tax profit due to higher net allowance for non-performing loans of RM3.8m recorded in 3Q24 (2Q24: RM2.4m), the rest of the business divisions managed to grow their revenue and pre-tax profits. Also, the overall QoQ performance was lifted by the contribution from RHB group, which up 13% as compared to 2Q24.

• YTD. All the units showed positive growth in pre-tax profits, except for the Industries segment due to allowance for doubtful debts in accordance with MFRS 9, amounting to RM4.5m in 9M24 vs. 9M23 of RM1.6m.

• Outlook. We expect OSK to perform better in for the rest of 2024, supported by growth in:-

1. The Property segment, driven by its unbilled sales of RM1.1bn. Also, the group has a total land bank of 1,881 acres with an estimated GDV of RM16.0bn will provide decent visibility for the next few years for the segment.
2. The Industries segment will continue to expect growth from the expansion of the existing cable production factory in Melaka, coupled with the acquisition of 2 new factories in JB, which will almost double the production capacity in the near future.
3. The Hospitality division will be having a strong quarter due to holiday season, while the partnerships with international operators for rebranded hotels like DoubleTree by Hilton Damai Laut Resort and Holiday Inn Express & Suites in JB will continue to drive positive results during holiday period.
4. The Financial Services segment is also expected to have positive growth backed by the sturdy loan portfolio.

Valuation & Recommendation

• Forecast. In view of the stronger results, we revised the core PATMI higher by 9.4%- 9.7% to RM519.0m and RM552.0m for FY25f-26f, respectively, taking into account stronger earnings growth from all business units, coupled with higher contribution from RHB Group.

• Maintain BUY with higher TP of RM2.06. The TP is based on a sum-of-parts valuation, applying a 1.0x multiple to the book value of the financial services and property development segments. We believe the property segment could benefit from an upcycle in the sector amid rising demand for data centers. The industries and hospitality segments are valued at a P/E multiple of 9.0x, reflecting their earnings potential in FY25f.

• Investment risks include weaker-than-expected property sales, which could delay future launches, and potential defaults by borrowers, which may slow down contributions from the capital financing business.

Source: Mplus Research - 2 Dec 2024