KUALA LUMPUR (Dec 8): Hong Leong IB (HLIB) Research has initiated coverage of OSK Holdings Bhd at 93.5 sen with a target price (TP) of RM1.42 based on 40% discount to SOP-derived value of RM2.37.

HLIB said it was forecasting OSK’s FY2022-2024 core earnings to grow at a CAGR of 10.2%, anchored by strong property launch pipelines, stable loan growth in capital financing, capacity expansion and robust growth in industries as well as net interest margin expansion in RHB.

“We believe that OSK with its resilient business model headed by a capable management team should be able to sail through the different economic cycles,” it said.

HLIB said OSK’s 10.22% stake in RHB has a market value of RM2.47 billion, which exceeds its market cap, adding that the shareholding provides the group with recurring dividend income and allows the group to secure loans (through share pledge) to expand its capital financing business.

“We believe the significant discount to RHB's stake is unjustified, especially given that its other core segments are currently profitable and doing well, suggesting a gross mispricing of the group.

“We believe our valuation is on the conservative side, as even at our TP, this implies FY2022/2023/2024 P/E multiple of only 7.7x/6.9x/6.3x, which we deem to be undemanding given the group’s stable earnings profile and strong earnings quality.

“Over the years, through steady and measured steps, OSK has successfully transformed its business from an investment banking firm to a well-diversified conglomerate,” it said.

At 9.32am, OSK added 0.53% or 0.5 sen to 94 sen with 347,200 shares traded.