net research

4Q FYE DEC 2012 RESULTS REPORT

5 March 2013

Name of PLC: OSK Holdings Bhd

Target Price:

RM1.60

Business Summary : Regional investment banking group

Major Shareholders :

Tan Sri Ong Leong Huat

30.47%

PLC Website : www.osk.com.my

Recommendation:

IR Contact : Lee Choon Meng, Chief Financial Officer

Market Capitalisation:

Constituent of:- FBM Mid 70

- FBM Emas

Current Price :
Market / Sector:
Stock Code:

HOLD
RM1.38bn
RM1.43
Main / Finance
5053

Analyst : Corinna Cheah / Lim Boon Ngee

Tel : +603 2163 3200; Email : corinnacheah@nra.com.my / bnlim@nra.com.my
Key Stock Statistics
FY12
EPS (sen)
1.5
P/E on EPS (x)
95.7
Dividend/Share (sen)
7.5
NTA/Share (RM)
2.21
Book Value/Share (RM)
2.21
Issued Capital (m shares)
969.1
52-weeks Share Price Range (RM)

Per Share Data

Year-end 31 Dec
Book Value (RM)
Cash Flow (sen)
Earnings (sen)
Dividend (sen)
Payout Ratio (%)
PER (x)
P/Cash Flow (x)
P/Book Value (x)
Dividend Yield (%)
ROE (%)
Net Gearing (%)
n.c. - net cash

FY13F
22.7
6.3
7.5
2.39
2.39
965.4

FY14F
24.4
5.9
7.5
2.62
2.63
965.4
1.35-1.79

FY11

FY12 FY13F FY14F

2.85
(6.5)
5.3
4.5
61.6
26.8
(22.0)
0.5
3.1
1.9
21.4

2.21
(99.0)
1.5
7.5
366.4
95.7
(1.4)
0.6
5.2
0.7
7.3

P&L Analysis (RMm) FY11

Year-end 31 Dec
Revenue
1051.4
Operating Profit
165.2
Depreciation
(18.4)
Net Interest
100.7
Pre-tax profit
93.2
Effective Tax Rate (%) 23.0
Net Profit
51.4
Operating Margin (%) 15.7
Pre-tax margin (%)
8.9
Net margin (%)
4.9

2.39
43.1
22.7
7.5
24.2
6.3
3.3
0.6
5.2
9.5
n.c.

50.7
31.3
(1.7)
0.2
226.5
25.0
218.7
61.9
447.2
431.7

53.2
32.9
(2.6)
0.1
243.3
25.0
235.1
61.9
457.5
442.0

4Q2012 Results Highlight / Review

Year-end 31 Dec

4Q12
RMm

4Q11
RMm

Chg
%

11.0
(5.1)
(19.9)
33.1
3.4
9.9
(46.3)
31.2
90.2
2012
RMm

6.0
16.0
(47.6)
0.7
15.7
14.1
266.4
262.1
236.1
2011
RMm

83.4
nm
(58.3)
>100
(78.2)
(29.9)

Continuing operations:
Revenue
41.8
Operating Profit
8.2
Finance costs
(179.7)
Associate
35.2
Pre-tax Profit
15.0
Net profit
14.5
Operating Margin (%)
19.5
Pre-tax Margin (%)
35.9
Net-Margin (%)
34.7

29.0
24.7
(200.0)
2.8
26.4
21.3
85.3
91.0
73.6

44.4
(66.9)
(10.2)
>100
(43.1)
(31.9)

Continuing operations:
Revenue
Operating Profit
Finance costs
Associate
Pre-tax Profit
Net profit
Operating Margin (%)
Pre-tax Margin (%)
Net-Margin (%)
Year-end 31 Dec

2.63
46.4
24.4
7.5
22.5
5.9
3.1
0.5
5.2
9.3
n.c.

FY12 FY13F FY14F

41.8
8.2
(0.8)
10.5
15.0
3.3
14.5
19.7
35.8
34.6

1.

Chg
%

OSK Holdingss (OSKH) reported stronger

4Q12 revenue from its continuing operations, on
improved investment holding activities but
higher operating expenses (sharply higher
salaries, allowances and bonuses YoY) and
allowance for impairment losses on loans
resulted in lower pre-tax and net profits YoY.
The relatively lower YoY decline at the net
profit level was due to income tax benefits.

The group completed the disposal of its

investment banking (IB) and related operations
to RHB Capital (RHBC) on 9 Nov 2012. Post
the disposal of the IB and related businesses, the
groups profitability will be mainly driven by
equity accounted profits from its 9.82%associate RHBC, followed by the capital
financing business under OSK Capital, rental
income from investment properties held under

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Ke-Zan Holdings, and property investment and
development activities under OSK Realty.

2.

We are maintaining our HOLD recommendation

on OSKH with an unchanged price target of
RM1.60 per share. Our price target is based on
our RNAV estimate, which was arrived at by
applying an estimated PE of 12x to the groups
remaining businesses post disposal of the
OSKIB group of companies, and including the
9.82% stake in listed RHBC. We have also
assumed a 30% discount to our RNAV estimate
given the groups lack of significant core
operating assets post disposal of OSKIB as well

as its holding company status. At our price target

of RM1.60 per share for OSKH, the implied
2013F PER and PBR for the stock are 7.1x and
0.7x, respectively.

Despite low prospective valuations and an

improved balance sheet position post disposal of
OSKIB group, we are maintaining our neutral
stance on the stock for the moment, pending the
inclusion of any new core business operations, in
addition to the groups remaining businesses
under OSK Capital, Ke-Zan Holdings and OSK
Realty.

Key Investment Risks

Key investment risks for the groups remaining operations in money lending and property investment include:
a) Softening of demand in the property market with tighter bank lending rules and economic
uncertainties, which would affect the property investment operations; and
b) Volatile stockmarket, economic and political conditions, which would affect the money lending
operations.

3.

Recent Developments
On 29 Sep 2011, the group submitted an application letter to Bank Negara (BNM) to seek an approval in
principle to commence negotiations with RHB Capital (RHBC) for a possible merger of businesses between
OSK investment banking (OSKIB) group and RHB banking group. On 28 May 2012, OSKIB on behalf of the
group had announced that it had entered into a conditional share purchase agreement (CSPA) with RHBC in
relation to the disposal of:
a) OSKHs 100% stake in OSKIB to RHBC;
b) OSKHs 20% stake in OSKTB to RHBC;
c) OSKHs 20% stake in MTB to RHBC;
d) OSKHs 100% stake in OSKL to RHBC,
for a total consideration of RM1.977bn to be satisfied through the issuance of 245m new RHBC shares at an
effective issue price of RM7.22 per RHBC share and cash of RM208.5m (being RM174.3m cash consideration
plus RM34.2m cash from RHBCs final dividend). OSKH is expected to utilise the total cash proceeds of
RM208.5m to cover estimated expenses of the proposed disposal (RM20m), repayment of bank borrowings
(RM180m) and for working capital purposes (RM8.5m).
On 9 Nov 2012, the above proposals were completed and OSKH currently holds approximately 9.82% equity
interest in RHBC.
On 29 May 2012, OSKIB had on behalf of OSKH submitted an application to Bursa for a waiver from being
classified as a PN17 company. On 3 Jul 2012, Bursa confirmed that the disposal will not result in OSKH
triggering criteria 2.1(g) and (h) of PN17.
Post the disposal of OSKIB group, OSKH does not have any profit consolidation from OSKIB, OSKTB, MTB
and OSKL. The board does not currently have any intentions to inject any new assets or businesses into the
OSKH group although news reports have indicated that the board will possibly look for a new core business.
After the proposed disposal of the OSKIB group and in the absence of any new asset injections, OSKH will
focus on the development and future growth of its existing businesses and expects the profitability of the group
to be driven mainly by the equity accounting of profit from its 9.82% stake in RHBC, followed by its capital
financing business under OSK Capital, rental income from existing properties held under Ke-Zan Holdings, and
property investment activities under OSK Realty.

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Source: OSK Holdings

4.

Earnings Outlook
Our 2013-2014F projections for the group are largely supported by estimated associate contributions from
9.82%-owned RHBC (circa 85-90% of group PBT), and to a lesser extent, contributions from the remaining
businesses under OSK Capital, Ke-Zan Holdings and OSK Realty.

5.

Valuation & Recommendation

We are maintaining our HOLD recommendation on OSKH with an unchanged price target of RM1.60 per
share.
Our price target is based on our RNAV estimate, which was arrived at by applying an estimated PE of 12x to
the groups remaining businesses post disposal of the OSKIB group of companies, and including the 9.82%
stake in listed RHBC. We have also assumed a 30% discount to our RNAV estimate given the groups lack of
significant core operating assets post disposal of OSKIB as well as its holding company status. At our price
target of RM1.60 per share for OSKH, the implied 2013F PER and PBR for the stock are 7.1x and 0.7x,
respectively.
Despite low prospective valuations and an improved balance sheet position post disposal of OSKIB group, we
are maintaining our neutral stance on the stock for the moment, pending the inclusion of any new core business
operations, in addition to the groups remaining businesses under OSK Capital, Ke-Zan Holdings and OSK
Realty.

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Disclosures/Disclaimer
Investment ratings:
Buy (generally >10% upside over the next 12 months)
Hold (generally negative 10% downside to positive 10% upside over the next 12 months)
Sell (generally >10% downside over the next 12 months)
This report has been prepared by Netresearch-Asia Sdn Bhd for purposes of CMDF-Bursa Research Scheme
(CBRS) III, administered by Bursa Malaysia Berhad (Administrator) and has been compensated to undertake
the scheme. Netresearch-Asia Sdn Bhd has produced this report independent of any influence from the
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