MARC has affirmed its AA_IS /AA ratings on OSK Rated Bond Sdn Bhd’s (OSKRB) Sukuk Murabahah/Multi-Currency Medium-Term Notes Programme (Sukuk/MCMTN) with a combined limit of up to RM2.0 billion. The ratings outlook is stable. OSKRB is a special-purpose funding vehicle of parent OSK Holdings Berhad (OSK) which extended an unconditional and irrevocable guarantee on the rated programme.

The affirmed ratings are mainly premised on OSK’s well-established operational track record in property development and financial services, the group’s low leverage position, and strong financial flexibility derived from its substantial stake in RHB Bank Berhad.

For 1H2021, the OSK group’s revenue and pre-tax profit rebounded to RM592.2 million and RM247.1 million (1H2020: RM430.3 million; RM159.7 million), supported by the improved performance of its property development activities, which recorded a sharp increase in revenue and pre-tax profit to RM378.8 million and RM99.5 million respectively. The better performance is attributable to the staggered pace and attractive locations of its launches that have enabled the group to chalk up a take-up rate of 77% for ongoing projects. It has an overall gross development value of RM2.2 billion for ongoing projects and unbilled sales of RM705 million. We note that domestic inventory remains low with unsold completed units valued at RM13.7 million as at end-March 2021. Its joint development project in Australia, the Melbourne Square phase 1, was completed in January 2021 and has achieved a take-up rate of 71% as at end-June 2021. We understand that the group has put the development of future phases of this project on hold until pandemic-related conditions ease.

Its financial services business registered higher pre-tax profit of RM151.3 million in 1H2021 (1H2020: RM110.4 million). Its lending portfolio stood at RM959.3 million as at end-March 2021; we understand that lending is well collateralised, at 3.6x of the loan portfolio. Non-performing loans (NPL) remained low, at 1.9% as at end-2020. Aside from property development and financial services, OSK is also involved in hospitality, property investment, construction, manufacturing and sales of power cables, and industrialised building system (IBS). However, these segments provide modest income streams.

Group borrowings rose by 8.5% y-o-y to RM2.6 billion with a gross debt-to-equity (DE) ratio of 0.48x at end-June 2021. Excluding funding for capital financing, borrowings would stand at RM1.8 billion, translating to adjusted gross and net DE ratios of 0.35x and 0.21x.

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