| Oiltek International surged 25% (from $1.55 to $1.93) in the past two trading days after announcing a heads of agreement with Bioseaga Industries to construct a massive US$350 million (RM1.4 billion) sustainable aviation fuel (SAF) facility in Sabah. This potential contract, whose definitive agreement is yet to be finalised, is expected to multiply the order book of Oiltek (market cap: S$828 million) by five times. Following this announcement, analysts from PhillipCapital and UOB Kay Hian heavily revised their models. Let’s check out the valuation metrics, assumptions, and justifications used by both. |
First, for an idea of what SAF is: 
| PhillipCapital’s Valuation: Premium for Growth and Cash |
Analyst Paul Chew raised Oiltek’s target price to S$2.72 (up from S$1.18).
Valuation Metric: He pegs Oiltek to a 24x PE multiple based on FY27e earnings.
Justifications: Paul justifies this multiple as a 50% premium to listed peers in Malaysia trading at a 16x PE, two years forward.
This hefty premium is supported by Oiltek's massive growth pipeline, its high Return on Equity, and a robust balance sheet with RM100 million net cash.
 "With jet fuel prices doubling since the Iran war, we expect the SAF plant's demand and profitability to improve dramatically. Demand for SAF isdriven by the increasing commitment to renewables, the use of sustainable waste oil, and energy security to ensure the availability of jet fuel." -- Paul Chew, analyst |
Furthermore, the analyst notes Oiltek's opportunity to build recurrent earnings streams from maintenance and potential ownership stakes in SAF plants.
Assumptions: Paul assumes a 2.5-year timeline to complete the RM1.4 billion project.
He models revenue recognition conservatively at first, assuming 5% of the project is recognised in FY26e, followed by a massive 45% in FY27e.
Consequently, his FY27e net profit forecast sits at a staggering RM150.2 million on RM908.8 million in revenue.
Comparing Paul's and UOB Kay Hian's valuation metrics:
|
Metric / Assumption |
PhillipCapital (Paul Chew) |
UOB Kay Hian (Heidi Mo) |
|
Target Price |
S$2.72 |
S$2.78 |
|
Valuation Multiple |
24x FY27e PE |
28x 2027F PE |
|
Valuation Justification |
50% premium to listed peers in Malaysia (trading at 16x PE, 2 years forward). |
1 Standard Deviation above historical PE mean, still trades at 25% discount to tech manufacturers in S'pore and Malaysia. |
|
FY27e Revenue |
RM908.8 million |
RM700.0 million |
|
FY27e Net Profit |
RM150.2 million |
RM131.9 million |
|
Profitability Assumptions |
High ROE (projected 69.4% in FY27e) and strong net cash balance sheet. |
>30% ROE, and net margins >15% (projecting 18.8% in FY27). |
| UOB Kay Hian’s Valuation: A Tech-Like Re-Rating |
Heidi Mo, analystOver at UOB Kay Hian, analyst Heidi Mo upgraded the target price by a whopping 166% to S$2.78 (previously S$1.05).
Valuation Metric: She uses a 28x PE multiple on 2027F earnings or one standard deviation above the historical PE mean.
Justifications: She argues that the strong contract win warrants a significant re-rating, pointing out that even at its current price, Oiltek trades at a 25% discount compared to tech manufacturers in Singapore and Malaysia.
She says Oiltek deserves to be valued similarly to tech peers due to its asset-light business model, superior EPS growth, a ROE exceeding 30%, and net margins above 15%.
Additionally, she highlights that a potential 10% equity stake in the plant could generate an extra RM14 million to RM28 million in future recurring earnings per annum.
Assumptions: To justify the S$2.78 target, she raised its 2027 earnings estimates by 187% to RM131.9 million on an upgraded revenue projection of RM700 million.
A bump in net margins to 19% is expected from better operating leverage.
UOB Kay Hian's Heidi Mo assigned both a higher target price (S$2.78 vs S$2.72) and a more aggressive valuation multiple (28x vs 24x). Interestingly, while Heidi used a higher multiple, Paul is actually more optimistic regarding Oiltek's earnings execution. Ultimately, both analysts view the RM1.4 billion SAF plant as a transformative contract for Oiltek. |
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