Blog, Stock Take

OSK Holdings Berhad (KLSE: OSK)

OSK Group started as a small stockbroking company in 1963. Today, it is is conglomerate with diversified interests in five areas; Property Development & Investment, Financial Services, Construction, Industries and Hospitality. The Group is made up of two companies that are publicly listed on Bursa Malaysia, namely OSK Holdings Berhad and OSK Ventures International Berhad

The following are OSK key businesses and ventures

  • Property Development  – Partnership with the Employees Provident Fund (“EPF”) to develop 5 acres mixed-use development project, located in Southbank, Melbourne that has expected gross development value (“GDV”) of over RM9.0 billion. The project launch sales reached up 43% and the construction commenced in Nov 2017. The project will be developed over 8-10 years.
  • Property Investment – Owns a total of over 1.2m sqft of lettable commercial and retail space in Malaysia. This includes Atria Shopping Gallery, which has 94% occupancy rate in 2017.
  • Financial – Has 10.13% equity interest in RHB Bank Berhad (4th largest bank in Malaysia). Aside to that, its capital financing division registered revenue of RM48M in 2017 and focus on niche markets and in the short term corporate and personal loan segments
  • Industries – Owns Olympic Cable’s factory in Melaka, which manufactures a wide range of power cables for utilities, road and rail infrastructure, buildings as well as the oil and gas sector
  • Hospitality – Comprises of hotels and resorts division namely the Swiss-Garden International Hotels, Resorts & Inns and the Vacation Club Division under SGI Vacation Club

Now, lets take a look into their business performance and financial indicators based on FY2017 annual and 2Q18 report

  • In 2017, Revenue and Profit (before tax) fall by 10.5% and 4.3% respectively from 2016. In 2Q18, revenue continue to decrease but the company’s profit (before tax) recorded 21.1% compare to 2Q17. In the bigger picture, the company has recorded 104% profit expansion between 2013 and 2017.
  • OSK dished out RM0.06 per share dividend, which is a 20% decrease from FY2016 and YTD dividend of RM0.02 is 20% lower than 2Q17. A peep into their 2Q 2017/18 cash flow statement tell us that OSK is consuming cash (and not generating cash) from its business. You may ask how does the company issue dividend without generating cash? The answer is, debt.
  • From zero borrowing in 2013, the company has taken up to RM 217M debt (incl. short and long term) to support its business growth
  • In recent times, debt ratio (i.e. Borrowings to shareholders equity ratio) has improved to 30% in FY2017 compare to 34% in FY2016. 2Q18 report suggests that the company is maintaining debt ratio level at 30% for FY2018. Peter Lynch’s benchmark for normal corporate debt is 25%
  • Recent headwinds in macroeconomics is not in favour for the company’s growth
    • Slowdown in Australia property market. Median property price down in Melbourne down 4.4% so far in 2018 (Data from The Sydney Morning Herald)
    • OSK holdings decision not to proceed to list its cable business, OCC Cables Ltd, on the Main Board of the Hong Kong Stock Exchange due to the current adverse global market conditions (News from The Edge Markets)

At today’s closing price, OSK is trading at RM 0.92 per share, which translate to P/E of 4.8 and P/B of 0.43. Based on these metrics, OSK is trading at 10 year low. However, rising interest rates and unfavourable macroeconomic may impede the company’s effort to grow its business. It’s prudent for investors to continue monitoring the company’s capability to generate positive cashflow and improve its debt ratio in the coming months.

Share with me your comments in the section below. You can also look into my stock take for Maybank (KLSE: Maybank) and Dialog Berhad (KLSE: Dialog)

Disclosure: I own stocks in OSK Holdings Berhad when this article was written. Any information, commentary, recommendations or statements of opinion provided here are for general information purposes only.

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