Bright prospects for OSK on competitive strength

PETALING JAYA: Hong Leong Investment Bank Research (HLIB Research) remains positive about OSK Holdings Bhd’s prospects, given the competitive strength of the group’s well diversified businesses.

This was despite OSK’s recent 6.1% decline quarter-on-quarter (q-o-q) in the third quarter of 2023 (3Q23) core earnings, primarily due to a drop in profit share from the RHB Group.

“The q-o-q decline had overshadowed the robust growth and strength of OSK’s business segments, notably from cables, integrated building systems and capital financing.

“The bright prospects of capital financing and cables are also reflected in the valuation and share price of OSK’s listed peers, namely RCE Capital Bhd and Southern Cable Group Bhd,” HLIB Research said in a note to clients.

The research house, which viewed OSK as a laggard to its peers, pointed out that the stock’s current share price had yet to reflect the value of the group’s businesses.

Hence, HLIB Research has maintained a “buy” call on OSK with a higher target price of RM2.04 from RM1.77 previously.

“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,” it noted.

Furthermore, HLIB Research said OSK had its own respective competitive advantage in its business segments, and thus, justifies a comparable or higher valuation multiple than its peers.

In cables, OSK commands industry-leading margins while in capital financing, OSK has a strong treasury team capitalising on its past extensive experience in the investment banking industry.

Coupled with its strong balance sheet, the group also commands a lower cost of funding with larger capacity for growth for its loan portfolio. Its Australia segment provides an extra growth lever in addition to civil servant financing, tapping into a sizeable market.