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 steady group financial performance, underpinned by its strong balance sheet structure, remains a key rating driver. Moderating the ratings are the potential slowdown in economic growth and weakening consumer sentiment that would weigh on its two key businesses, namely property development and financial services.
MARC Ratings views OSK’s approach to property development — through staggered launches and property mix depending on location — has been the reason for its strong sales and, conversely, a low inventory level over the years. Ongoing domestic property projects had a combined gross development value (GDV) of RM2.7 billion and an average take-up rate of 74% as at end-June 2023. These comprise new phases within existing townships — Iringan Bayu, Seremban and Bandar Puteri Jaya, Sungai Petani — and high-rise developments in the Klang Valley and Butterworth, Penang. Completed inventory stood at a low RM6.2 million. Abroad, OSK’s key project is in Melbourne, Australia, and is undertaken on a joint-venture basis with the Employees Provident Fund (49%). The project, Melbourne Square, comprises Phase 1 (GDV: AUD970 million; 1,054 units) and Phase 2 (GDV: AUD654 million; 593 units). Phase 1, which was completed in early 2021, achieved strong sales with the inventory level standing at AUD151.7 million (110 units) as of mid-September 2023. Phase 2 was officially launched in mid-October 2023.
The rating agency notes the group’s financial services segment — lending through its capital financing division and banking through its 10.24% associate stake in RHB Bank Berhad — has remained resilient. Coupled with improved share of profit from its strategic stake in RHB Bank Berhad, the segment’s pre-tax profit increased to RM194.0 million in 1H2023 (1H2022: RM141.0 million). The capital financing lending portfolio rose to RM1.5 billion as at end-June 2023 (end-2022: RM1.4 billion) as it expanded its portfolio of Shariah-compliant civil servant personal financing to about 8.9% (end-2022: 5.1%). The non-collection risk for the civil servant personal financing segment is low as payments are received through direct salary deduction via Angkatan Koperasi Kebangsaan Malaysia Berhad.
For 1H2023, group revenue and pre-tax profit improved y-o-y to RM730.6 million and RM271.9 million (1H2022: RM641.1 million; RM219.6 million). Domestic unbilled sales of RM952 million as at end-June 2023 underline earnings visibility over the next two years. Consolidated borrowings remained unchanged y-o-y at around RM3.0 billion as at end-June 2023, with gross debt-to-equity (DE) and net DE ratios standing at 0.50x and 0.39x. Excluding capital financing, borrowings would stand at RM1.8 billion, translating to adjusted DE and net DE ratios of 0.31x and 0.21x. Total outstanding under the rated programmes stood at RM1.2 billion as of end-October 2023. The rating agency understands that proceeds from recent issuances of RM500.0 million under the rated programmes in mid-September 2023 were utilised to refinance the group’s existing borrowings.