Oiltek International Poised for Valuation Boost with Multiple Catalysts
UOB Kay Hian Report | 27 March 2025
Oiltek International (OTEK SP) is primed for a valuation re-rating with several positive developments in the pipeline, according to a report by UOB Kay Hian. The renewable energy equipment provider has announced plans to transfer its listing to the SGX Mainboard, issue bonus shares, and forge a promising partnership with Pertamina in the sustainable aviation fuel (SAF) sector.
Mainboard Listing and Bonus Shares to Enhance Liquidity
Oiltek has submitted an application to transfer its listing from the Catalist Board to the SGX Mainboard, which could enhance the company’s image and provide access to a wider pool of institutional and overseas investors. Additionally, Oiltek has proposed a 2-for-1 bonus share issue, which would increase the number of shares from 143 million to 429 million. This move is expected to improve trading liquidity and broaden the shareholder base.
“Both the transfer of listing and bonus issue will be tabled for approval in Oiltek’s AGM on 25 Apr 25,” the report notes. “We believe further developments of these first two events could improve trading liquidity and widen its shareholder base.”
Pertamina Partnership Unlocks New Revenue Streams
Oiltek has also announced a head of agreement with Indonesian state-owned oil and gas company Pertamina to explore the development of a Pre-Treatment Unit (PTU) and the supply of feedstock for the PTU. This partnership aims to find alternative feedstocks to replace crude palm oil, enabling the production of sustainable aviation fuel (SAF) and hydrotreated vegetable oils (HVO) to meet growing export demand.
“We think that this is a positive development as it enables Oiltek to generate revenue from: a) construction revenue in the initial stage of construction; b) ownership of a substantial stake in the completed plant; and c) supply of PTU’s palm oil effluent feedstock,” the report states. “We expect the construction revenue of this project to start contributing in 2026, while the plant should start contributing from 2027 onwards.”
Favorable Industry Trends and Strong Orderbook
The report highlights that the international aviation industry has set a goal to reach net zero CO2 emissions by 2050, which will require a significant increase in SAF production. As Oiltek provides solutions for treating vegetable oil-based raw materials as feedstock in HVO production, the growing demand for SAF could lead to more contract wins for the company.
Furthermore, higher biodiesel blending requirements in Malaysia and Indonesia are expected to boost demand for biodiesel and drive growth in Oiltek’s renewable energy segment. The company’s orderbook remains near record highs, standing at RM355 million as of 12 Feb 25, which is expected to be fulfilled in the next 18 to 24 months.
Valuation and Recommendation
UOB Kay Hian maintains a BUY rating on Oiltek International with a target price of S$1.44, up from the previous target of S$1.37. The revised target price is based on a slightly higher 20x 2025F price-to-earnings (PE) ratio, pegged to 0.8x price-to-earnings growth (PEG) ratio.
“We have ascribed a 20% discount to 1.0x PEG, as we monitor for an improvement in trading liquidity which could lead to a better price discovery for Oiltek,” the report explains. “We raised our PE multiple marginally to account for more corporate actions that could increase trading liquidity and enhance the investor base.”
The report cites potential upside catalysts, including higher-than-expected order wins and better-than-expected gross margins from improved economies of scale.