MARC Ratings has affirmed its ratings of AAIS /AA on funding vehicle OSK Rated Bond Sdn Bhd’s Sukuk Murabahah/Multi-Currency Medium-Term Notes (Sukuk/MCMTN) Programmes with a combined limit of up to RM2.0 billion. The ratings outlook is stable. The ratings apply only to ringgit-denominated sukuk/notes under the programmes. The programmes carry an unconditional and irrevocable guarantee from OSK Holdings Berhad (OSK).
OSK’s continued strong operational and financial performance across its key operating segments — property, capital financing and banking (RHB Bank Berhad in which OSK has a 10.3% stake) — and strong balance sheet, characterised by a low leverage position, remain key rating drivers. Moderating the ratings are risks associated with the expansion of capital financing domestically and in Australia, and the potential impact from any slowdown in the property industry.
For 1H2024, revenue from its property development segment declined slightly by 2.2% y-o-y to RM416.5 million, supported by ongoing sales during the period. Ongoing domestic property projects — including Iringan Bayu, Seremban, and Bandar Puteri Jaya, Sungai Petani — had a combined gross development value (GDV) of RM2.1 billion and a 69% take-up rate as at end-1Q2024. MARC Ratings notes OSK’s domestic property developments have been characterised by strong take-up that has led to a low inventory level, which stood at RM7.3 million as at 1Q2024. Its approach of staggering launches within matured townships, including the Klang Valley and Penang, and its moderate-to-high pricing range have been the reasons for the performance of its property segment. Domestic unbilled sales, which stood at RM736.1 million as at end-March 2024, underline earnings visibility over the next two years.
Geographically, OSK’s key property project in Melbourne, Australia, is undertaken on a joint-venture (JV) basis with the Employees Provident Fund (EPF, 49%). Phase 1 of the Melbourne Square project with a GDV of RM2.9 billion was completed in early 2021 and achieved strong sales of 85%; Phase 2, with a GDV of RM2.0 billion, was launched in October 2023 and has achieved a 50% take-up rate as at 1Q2024. The rating agency views that the prevailing challenging property market conditions in Australia, impacted by the high–interest rate environment, could weigh on sales over the near term.
OSK’s capital financing division has expanded its credit lending to incorporate personal lending to civil servants, where the risk is mitigated through direct salary deductions via Angkatan Koperasi Kebangsaan Malaysia Berhad (Angkasa). It has also steadily expanded its credit lending in Australia to about RM429 million, with a focus on the commercial real estate segment. While OSK has a proven track record in capital financing activities domestically, including maintaining a high collateral coverage of 3.5x as at end-March 2024 over its lending portfolio (excluding Angkasa-related portfolio), replicating this in Australia could potentially be challenging, compounded by the weak commercial real estate market there. For 1H2024, revenue from financial services — capital financing — grew significantly to RM107.5 million (1H2023: RM75.8 million) on the back of a higher financial portfolio which stood at RM1.8 billion as at end-June 2024 (June 2023: RM1.5 billion).
In terms of the industries segment (cables and Industrialised Building System (IBS)), revenue declined by 12.0% y-o-y to RM161.5 million on lower orders while revenue for the hospitality segment (comprising five hotels) grew by 11.3% y-o-y to RM50.2 million. The profitability of both segments remains modest. MARC Ratings continues to view positively OSK’s stake in RHB Bank, which continues to be an important earnings contributor. RHB Bank contributed RM148.8 million in 1H2024, at about 52.6% of total pre-tax profit of RM282.8 million. Consolidated borrowings remained unchanged at RM3.3 billion, with gross debt-to-equity (DE) and net DE ratios standing at 0.51x and 0.40x as at end-June 2024. Excluding capital financing, borrowings would stand at RM1.4 billion, translating into an adjusted DE ratio of 0.32x. Total outstanding under the rated programmes stood at RM1.46 billion as of end-June 2024.