OSK - Jump Ship or Boarding Time?

I've recently came to notice OSK after December when I wanted to see how the current stock market would judge OSK share prices as their core business is in the equity markets. With uncertainty hovering over the world markets and the end of the Bull in KLSE, brokerage houses like OSK and ECM Libra are bound to be affected by reduced revenue from the equity markets.

I wasn't surprised to see OSK share prices slowly edging downwards at the end of 2007 and is almost at a 52 week low at RM1.87 two days ago(52 week low was RM1.85). Currently trading below it's 200MA and a continuous down trend for the last 12 trading days, the market has seem to lost interest in the new merchant bank. With the retiring of the bull, OSK share prices seem to hibernate with it.

OSK Holdings still has one company warrant in play for 100 million shares expiring in 2010, where it's strike price of RM2.23 is above the current trading price on the KLSE. Even if the warrant holders can exercise it, they wouldn't at current market conditions and with another 3 years to go before expiry, they don't have reason to do so.


Profits and Outlook.

2006 and 1st half for 2007 was good for stock broking firms, with revenues flowing steadily from high volume of trade in KLSE. However as the bearish sentiments hangs over the horizon, OSK revenues from the equity markets are expected to reduce. Although it has other businesses in financial segment, equity was it's core business and it seems unlikely it's other business would grow as fast to compensate for the loss of revenue.

It's q-q profits were reduced by over 35% to about RM53 million from the previous RM80 million profit. Their 4th quarter results are expected within this week or next. It is expected their y-y profits would increase by at least a conservative 100% though as their 3 quarters accumulated net profit already touch the RM200 mil mark compared to 2006 profits of RM99 million. Unless of course they manage to get themselves into a loss making 4th quarter, which I doubt they would. At current share prices the expected PER of 5.8-6x 2007 earnings, the stock does look attractive doesn't it. But with low volume of trade, it is risky holding on too much, but since I'm such a small time trader, the volume is still acceptable. At least it isn't like some shares which records '0' trades on some days.

In terms of dividends, OSK has continuously gave out dividends every year since inception in 1991 and in 2007 so far, it has given 10% dividends on it's par value. I expect at least another 5% at least for it's shareholders since 2007 was quite a good year compared to 2006. Dividends for 2006 was 12.5% of par value.


Since it's estimated earnings for 2008 are expected to come down, it's immediate future seems a little bleak. But with it's new license as a merchant bank, it's options to expand into other areas of financial activity could negate the effects of a market downturn in 2008. With brokerage offices in Hong Kong and Singapore, Malaysia isn't the only source of revenue for them. With some luck, OSK might actually make some gains in 2008 if it makes full use of it's merchant banking license.