OSK Property set to double profits


OSK Property Holdings Bhd is en route to a doubling of its full-year profits, going by its first-half results which came in at 185% higher than a year ago.

Its net profit for the six months ended June 30, 2014 were boosted largely by the group’s progress in the construction of ongoing projects.

In a filing with Bursa Malaysia last week, the group attributed its outstanding financial performance to the advanced construction progress for projects such as Mirage by the Lake and Pan’gaea in Cyberjaya, Mirage Residence in Kuala Lumpur, Atria SOFO Suites in Damansara Jaya, Sutera Damansara in Sungai Buloh and Bandar Puteri Jaya (BPJ) in Sungai Petani.

For the first half year of 2014, the group achieved profit after tax and minority interest (PATAMI) of RM50.2mil on revenue of RM323.7mil, compared with PATAMI of RM17.6mil on revenue of RM160.6mil recorded in previous corresponding period.

Loosely annualised, the PATAMI for this financial year could be over RM100mil, a record high for the company.

Although there is no analyst coverage on the stock at the moment, a property analyst commented that “assuming OSK Property owns 100% of all the projects and the gross development value (GDV) assumptions are not overly aggressive, the value of the company should be at least double the current market capitalisation”.

A check with the company, which is rather media-shy, revealed that the group has a GDV of RM6.9bil for ongoing and future projects.

Its unbilled sales is a solid RM1bil as at June 30, 2014.

Its gross profit margin based on the audited results for the six months period ended June 30, 2014 is 31% while net profit margin is 21%.

At a market capitalisation of RM635mil, OSK Property fares among the best of its peers.

For investors, its return on equity (ROE) is a decent 21.14% compared to the relative valuation median ROE of 7.49%, according to Bloomberg data.

Other small and mid-cap property developers also posting double digit ROEs are Tambun Indah Land Bhd at 30.30%, Hunza Properties Bhd at 25.12% and Land & General Bhd at 20.24%.

A market observer notes, however, that some of the small and mid-cap property plays could be attributed to investors running out of ideas on what stock to put their money in next.

“If you look at some of these companies, there is no new fundamental catalyst as many have not changed their business plan or strategy. Most of them are also trading below their book value because they have not realised their assets, a norm in the industry.

“The market is running out of ideas on what to buy next, so the easiest counters to play are the small and mid-cap property stocks because of their assets,” the market observer opines.

That said, driving the performance of OSK Property will continue to be most of its ongoing projects.

For remainder of this financial year, the company says it has two more launches to go.

One is Emira, a mixed development comprising boutique retail shop office and serviced apartments in Shah Alam with a GDV of RM250mil.

Another one will add RM338mil GDV to the group and it is called Kepler Residence and Retail in Cyberjaya, which made up of commercial urban retail and serviced suites.

Beyond this financial year, recurring income could feature more prominently in OSK Property’s financials.

The group has in the pipeline plans to construct and own the largest shopping mall in Sungai Petani with 550,000 to 650,000 sq ft in net lettable area.

This is within the BPJ township development where OSK Property has already developed some 1,160 acres of land into residential and commercial properties.

The group also proposed the disposal of 108 acres freehold land in the BPJ township in Sungai Petani to PR1MA Corp Malaysia for a cash consideration of RM56mil.

Along with that is PR1MA’s ancillary appointment of OSK Property as its turnkey contractor to construct and complete the construction of 1,395 units of affordable residential houses on the land together with all the necessary amenities, utilities, facilities and infrastructure, the filing says.

The disposal is not expected to have any material impact on the earnings and earnings per share of the group for the financial year ending Dec 31, 2014 but will contribute to the near future earnings.

“The proposed disposal would help boost population and traffic flow into the proposed shopping mall and BPJ township and eventually enhancing the group’s future earning potential generated from a recurring income source,” it says.

Aside from this, the Atria rejunevation project consisting of retail and SOFO components is also estimated to be completed end of this year. When opened and running, it will further cement the group’s source of recurring income.

The group has remaining land bank of 1,400 acres for future development. A run-through of the 2013 annual report shows that aside from the locations with ongoing projects mentioned, OSK Property has land in Shah Alam, Bandar Sri Damansara and Seremban held for development.

OSK Property closed its trading at RM2.65 unchanged yesterday on a smallish trading volume of 47,300 shares. The year-to-date return on its share price is 112.6%.


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