OSK Property (2)

Everybody Kaya, Not Just Ong Sahaja Kaya

Publish date: Thu, 10 Apr 2014, 05:41 PM

---

My friend used to tell me "Don't touch Tan Sri Ong Leong Huat counters.  OSK means Ong Sahaja Kaya, he won't take care of minority shareholders."

Of course, I took it that he was just joking. 

There is a common perception among the investing public that OLH like to take advantage of minority shareholders.

For example, his recent offer to privatise OSK Ventures at a huge discount to net assets.

But in the first place, it is a General Offer on willng-buyer willing-seller basis.  If you don't like the proposition, you don't accept the offer. I just couldn't see the logic for blaming OLH.

But of course, OLH doesn't exactly smell like a rose either (nobody is obliged to be). He takes care of his own interest before everybody else. This is human nature, and every PLC owner does that. 

This is not to say that I condone bad corporate governance. I dislike PLC owners who injects assets into the company at inflated price, lies, cheat, or pilfering the company's wealth.  I think that is simply pathetic.

But OLH is not in that league. He might be trying to enrich himself by exploiting market inefficiency, but he is not a crook.

I think I will stop here. The objective of this article is to discuss OSKP. I don't want all of us to be entangled in endless debates about somebody's character and integrity. Anyway, those are my personal views, and readers don't have to agree with me.     

(1) The Ong Family Re-Invigorated

If it was a few years ago, I wouldn't have taken OSK group seriously. At best, OLH's companies are second tier. They are not very proftable, not very sexy, not very interesting.

However, there is a notable change after he sold OSK Investment Bank to RHB Capital for a combination of cash and shares.

OLH now controls 10% of the fifth largest bank in Malaysia. He is no more a marginal player.

The various public listed companies he controlled also become more sexy.

Once a sleepy counter, PJ Development Holdings Bhd woke up at the beginning of this year.  Its Warrants-C rose from 25 sen to 80 sen within a short span of two months. Many members of i3 laughed all the way to the bank.

OSKP also reported better and better earnings, with share price on a steady upward trend.

That is why nowadays I paid great attention to OLH related counters.

(2)  Background Information on OSKP

Based on 241 mil shares and latest market price of RM1.74, OSKP's market cap is RM419 mil.

It has strong balance sheets. With loans of RM180 mil, cash of RM150 mil and net assets of RM412 mil, net gearing is only 0.1 times.

		FYE 31 December 2012						FYE 31 December 2013
(RM mil)	Q1	Q2	Q3	Q4	Total		Q1	Q2	Q3	Q4	Total
Revenue	51	53	57	55	216		57	104	149	146	456
Net Profit	12	6	8	5	31		6	11	20	18	55
EPS (Sen)	5.0	2.5	3.3	2.1	12.9		2.5	4.6	8.3	7.5	22.8

Based on latest EPS of 23 sen, historical PER is 7.6 times. Fairly valued for a small cap.

(3) Atria Project, Potential Re-Rating Catalyst

As per my earlier article dated 22 March 2014, "OSK Property (Part 1) - Opening of Atria Mall by End 2014 WIll Trigger Re-Rating", OSKP targets to open the new mall by Q4 of 2014.

Based on back of the envelope calculation, that could potentially add RM19 mil to the group's net profit per annum. Please refer to that article for details.

The following are some photos I snapped regarding Atria project.

(Billboard at Damansara Jaya advertising Atria Mall opening by end 2014)

(Atria development project under construction.  Upon completion, it will dominate the skyline of Damansara Jaya)

(The development project comprises a long building with two towers mounted on top of it)

(Believed to be the entrance of the Mall. Unlike other parts of the building which are still concrete slabs and steel bars, this part is beginning to look like a mall, getting ready for Q4 2014 opening)

(4) Landbanks

The following are OSKP's landbanks according to FY2012 annual report :-

Location	Description	Remaining Area (acres)	Date of Acquisition	NBV (RM mil)
Sungai Petani, Kedah	Under development	1,590	1996	225
Seremban	Under development	15	2006	23
Damansara Jaya, PJ	Under development	5.5	2007	118
Cyberjaya, Sepang	Under development	11	2011	102
Shah Alam	To be developed	14	2012	48
Sri Damansara, Selangor	To be developed	1	2012	12
TOTAL		1,637		528

To be honest, the land bank is not very exciting. Out of 1,637 acres of land, 1,590 acres are in Kedah.

Speaking to the press few years ago, OLH's son explained that OSKP will not own large swath of land bank. Their strategy is to acquire land bank and develope it immediately to unlock value.

Very much like Mah Sing.

I used to ask the owner of a public listed company "You bought this piece of land at such a high price, how are you going to make money out of it ?"

"Oh", he explained, "That is not something for me to worry. I told my CEO how much profit I want to make out of the land and he will have to figure out how to do it".

That forever changed the way I look at property developers.

Before that, I thought it is critical for property developers to have as much land bank as possible, and have them cheap !!!

But now I realize that it is not necessarily true.

Developers can play with something called "Plot Ratio".  The higher the Plot Ratio (for example, a Plot Ratio of 12 is considered high), the more development units you can squeeze into a piece of land (subject to local authority approval), and the more profit you can make. Provided you have got your products, concepts, pricing, branding, etc right.

As such, nowadays I seldom lose sleep over lack of land bank. Mah Sing was not famous for holding big land bank, yet it grows into multi-billion Ringgit market cap.

(5) Other Development Projects

OSKP has few other projects in KL, Cyberjaya, etc. Please refer to their website for further details.

(6) Concluding Remarks

As mentioned above, I started looking at OSKP and other OLH related counters because post RHB deal, the entire group has somehow become more dynamic and progressive.

I can't exactly explain what is the reason behind it.  

Maybe it is due to OLH now has more time to concentrate on its various listed entities now that his investment banking operation has been swapped into 10% stake in a blue chip company.

Or it could be because the availability of more resources (they did well in the RHB deal) has emboldened them to adopt a more growth oriented strategy.

One thing is clear - they are ready to rock and roll.

As usual, I prefer not to ascribe fair value to a particular stock. However, OSKP does look interesting as the opening of Atria Mall in a few months time will likely to cause the stock to re-rate.

Have a nice evening.