Introduction

Oiltek International Ltd, a prominent player in the vegetable oils industry, is making waves with its innovative engineering and renewable energy solutions. This report, prepared by CGS International, dives deep into the company’s financials, growth opportunities, and risks. Additionally, we explore the performance and market position of its peers, BM GreenTech Bhd, Samaiden Group Bhd, and Kelington Group Bhd, providing a comprehensive overview of the agribusiness sector.

Oiltek International Ltd: A Rising Star

Business Model and Market Position

Oiltek International Ltd specializes in the engineering, procurement, construction, and commissioning (EPCC) of edible and non-edible oil refining plants. The company operates an asset-light model, outsourcing parts fabrication to third parties while focusing on design and assembly. This strategy enables Oiltek to maintain a high return on equity (ROE), averaging 34.7% over FY24-26F.

Strong Order Book and Growth Drivers

As of October 29, 2024, Oiltek boasts a robust order book of RM401 million, providing revenue visibility for the next 18-24 months. Among its growth drivers are biodiesel blending mandates in Malaysia and Indonesia, as well as the increasing demand for Sustainable Aviation Fuel (SAF). The company is well-positioned to benefit from its expertise in refining plant technology, including patented processes.

Financial Performance

Oiltek has achieved remarkable financial growth, with revenue increasing at a CAGR of 25.8% from FY19-23. Gross profit margins have fluctuated due to geographical revenue mix and outsourcing costs but remain strong at 19.5% in FY23. The company’s operating profit margin ranged from 9.7% to 18.6% over the same period, impacted by listing expenses and foreign exchange movements.

Valuation and Recommendation

CGS International initiates coverage on Oiltek with an “Add” rating and a target price of S\$1.32, representing a 30.7% upside. The company is valued at 18.8x 2025F P/E, a 10% discount to the sector average. Its strong order book and growth potential make it a compelling investment opportunity.

Peer Companies Analysis

BM GreenTech Bhd

BM GreenTech Bhd, with a market capitalization of US\$258 million, is a notable player in the renewable energy sector. The company trades at a 2024F P/E of 26.7x and 2025F P/E of 22.2x, with an EPS CAGR of 15.5%. Its recurring ROE stands at 12.4%, and it offers a dividend yield of 1.2%. While promising, its growth rate lags behind Oiltek’s, making it a less attractive investment.

Samaiden Group Bhd

Samaiden Group Bhd, valued at US\$122 million, focuses on engineering, procurement, and construction in the renewable energy space. The company boasts an impressive 3-year EPS CAGR of 30.1%, trading at a 2024F P/E of 33.1x and a 2025F P/E of 21.7x. Its recurring ROE is 14.2%, and it offers a modest dividend yield of 0.6%. While its growth metrics are strong, its higher valuation multiples make it a more expensive option compared to Oiltek.

Kelington Group Bhd

With a market capitalization of US\$548 million, Kelington Group Bhd is a diversified engineering solutions provider. The company trades at a 2024F P/E of 21.7x and 2025F P/E of 18.9x, with an EPS CAGR of 5.5%. Its recurring ROE is 29.3%, and it offers a dividend yield of 1.9%. While its financial stability is commendable, its slower growth rate makes it less appealing than Oiltek.

Key Risks and Opportunities

Risks

• Customer Concentration: Oiltek relies heavily on a few key customers, with three clients contributing 37% of revenue in FY23.
• Raw Material Costs: Fluctuations in raw material prices and supply disruptions could impact profitability.
• Foreign Exchange Risk: The company is exposed to currency fluctuations, particularly in USD and EUR.

Opportunities

• Biodiesel Mandates: Increasing biodiesel blending requirements in Malaysia and Indonesia offer significant growth potential.
• Sustainable Aviation Fuel: The global shift towards SAF provides long-term opportunities, especially with Oiltek’s expertise in HVO feedstock treatment.
• Global Fats and Oils Market: The market is projected to reach US\$285.2 billion by 2026, supporting demand for refining plants.

Conclusion

Oiltek International Ltd stands out as a promising investment in the agribusiness sector, backed by a strong order book, innovative solutions, and robust financial performance. While its peers also offer growth potential, Oiltek’s superior growth metrics and attractive valuation make it a compelling choice. Investors should consider the risks but remain optimistic about the company’s long-term prospects.