MARC Ratings has affirmed its AAIS /AA ratings on funding vehicle OSK Rated Bond Sdn Bhd’s Sukuk Murabahah/ Multi-Currency Medium-Term Notes Programmes (MCMTN) 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). Total outstanding under the rated programmes stood at RM698.0 million as at September 22, 2022.
OSK’s well-established operational track record, low leverage position and strong financial flexibility remain key rating drivers. For 1H2022, group revenue rose by about 8% y-o-y to RM641.1 million with the growth coming from non-property development related businesses. However, pre-tax profit declined by about 10% y-o-y at RM221.9 million on lower contribution from its property development division (1H2022: RM65.6 million; 1H2021: RM99.5 million) due in part to its new launches being in the early stages of the billing cycle. OSK’s combined gross development value (GDV) of ongoing development projects stood at RM2.0 billion with an overall take-up rate of 79.6%. Among its key projects are You City III in Cheras (GDV: RM489 million) and Mira @ Shorea Park in Puchong (GDV: RM364 million), as well as two townships, Iringan Bayu in Seremban and Bandar Puteri Jaya in Sungai Petani.
MARC Ratings notes unbilled sales of about RM1.0 billion provide earnings visibility through 2024. Unsold completed inventory remained minimal at RM10.0 million for its domestic developments. Its overseas project Melbourne Square, in which it holds a 40.6% stake, has achieved around 80% take-up rate for its Phase 1 while subsequent phases are in the planning stages.
Its financial services segment — lending through its capital financing division and banking through its 10.21% stake in RHB Bank — has been fairly resilient. For 1H2022, this segment generated pre-tax profit of RM143.3 million (1H2021: RM151.3 million). Total financing portfolio stood at RM932.7 million with non-performing loans of 3.7% as at end-June 2022 (end-2021: 5.2%). As the loans carry an average 3.5x collateral cover, OSK deems the recoverability to be strong. Its other businesses — property investment, construction, and manufacturing and sales of power cables and industrialised building system (IBS) — provide relatively moderate earning streams.
Group borrowings stood at RM2.5 billion as of end-June 2022 (end-2021: RM2.8 billion), with gross debt-to-equity (DE) and net DE ratios of 0.46x and 0.33x. Excluding funding for capital financing, borrowings would stand at RM1.9 billion, translating to adjusted gross and net DE ratios of 0.35x and 0.22x.