Technical Business Became a Market Darling with a 390% stock surge in 1 year

THE CONTEXT

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- Oiltek designs and builds factories that refine vegetable oils (like palm oil and soybean oil) into usable products.
- It also develops renewable energy plants, such as biodiesel production facilities, which convert waste or non-edible oils into cleaner fuels.
- Additionally, it sells specialized equipment and chemicals used in these industries.
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- Oiltek uses an "asset-light" model, meaning it outsources much of the physical construction work to other companies while focusing on high-value activities like design, engineering, and project management.
  
  This approach keeps costs low while allowing them to serve clients globally.

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- The business involves highly specialized engineering processes and proprietary technologies.
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- Oiltek operates in multiple areas—edible oil refining, renewable energy, and product trading—each with different market dynamics and risks. This diversification can make it harder to evaluate its overall performance.
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- The company is exposed to fluctuations in global commodity prices (e.g., palm oil) and regulatory changes in renewable energy policies, which can affect demand unpredictably.
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- It operates not only in Malaysia but also emerging markets like Indonesia, Africa and Latin America adds risks such as political instability, currency fluctuations.

Last week, analysts (UOB Kay Hian, CGS-CIMB, and PhillipCapital) put out reports on Oiltek after it reported a 55% jump in FY24 net profit to S$29.6 million.

Here is a summary:

Engineering Specialist With Strong Orderbook

All three analysts are optimistic about Oiltek's future performance, citing its strong order book, growth in the edible and non-edible oil refinery segment, and opportunities in renewable energy.

: Maintains a "Buy" rating, highlighting record-high revenue and earnings in FY24 with a robust order book of RM355m.
: Reiterates an "Add" rating, emphasizing Oiltek's ability to secure new contracts and its order book.
: Maintains a "Buy" rating with an increased target price, citing strong FY24 results and growth prospects in refinery orders and renewable energy.

All analysts note Oiltek's FY24 improved gross margins and higher contributions from the edible and non-edible oil refinery segment.

OiltekCEO
"Oiltek had another record year of growth in FY2024, buoyed by a strong order book from new and existing customers. This is a testament to our resilient business, strong engineering capabilities, proprietary patented technology, and continuous innovation."

-- Henry Yong Khai Weng,
CEO, Oiltek

:Highlights a 55% YoY increase in net profit due to better-than-expected margins.

: Notes that FY24 net profit was 14% above consensus estimates, supported by margin improvements.
: Reports a 58% YoY jump in 2H24 PATMI and a 68% increase in dividends.

The analysts identify similar growth drivers for Oiltek:

Rising demand for edible oils due to population growth.
Renewable energy opportunities, including biodiesel blending mandates in Malaysia (B20 to B30 by 2030) and Indonesia (B35 to B40 in 2025).
Potential from sustainable aviation fuel (SAF). SAF is a liquid fuel that can be produced from various sources like hydro-treated vegetable oil (HVO).

Oiltek has solutions to treat vegetable oil-based raw materials as feedstock in HVO production, so look out for contract wins in this nascent SAF business.

Differences

The target prices vary only slightly among the analysts due to differences in valuation methodologies:

Oiltek
Share price: $1.20	Targets: $1.37-$1.48

: S$1.37 (based on 19x FY25F PE with a 10% discount).

: S$1.43 (based on sector-average FY26F PE of 18.3x).
: S$1.48 (based on 20x FY25E PE).

Each analyst emphasizes different risks:

Stock price	$1.20
52-wk range	23 c – $1.24
Market cap	S$170 m
PE (trailing)	20
Dividend yield (trailing)	7.52%
1-year return	390%
Source: Yahoo!

: Mentions order cancellations, unfavorable forex movements, raw material price spikes, and supply disruptions.
: Highlights downside risks such as delays in order fulfillment and fluctuations in raw material costs.
: Notes slower revenue momentum and bad debt provisions as potential concerns.

VALUATION

While all analysts project revenue growth, their forecasts differ slightly:

: Projects RM270m for FY25 (+17% YoY).
: Forecasts RM282.3m for FY25 (+22.6% YoY).
: Estimates RM293m for FY25 (+27.4% YoY).

PhillipCapital assigns a higher valuation premium compared to CGS-CIMB and UOB Kay Hian, citing Oiltek's strong balance sheet, high ROE, and growth profile.

UOB Kay Hian's full report is here.