Following the release of Oiltek International’s FY2024 ended Dec 31, 2024 results, analysts at UOB Kay Hian (UOBKH) and PhillipCapital have both kept their “buy” call at respective raised target prices of $1.37 and $1.48, from $1.22 and $1.19 previously.
UOBKH analysts John Cheong and Heidi Mo note in their Feb 13 report: “Oiltek’s FY2024 revenue of RM230 million ($69.6 million) was largely in-line with our forecast, while net profit of RM30 million beat our and consensus estimates by 12% and 14% respectively on better-than-expected margins.”
The growth in revenue and net profit was due to revenue from Oiltek’s edible and non-edible oil refinery segment, which surged 23% y-o-y to RM193.9 million from new projects from Malaysia that were secured in 2023. Product sales and trading revenue increased marginally to RM18.8 million, from greater demand for parts and engineering components from Malaysian customers.
The renewable energy segment, however, saw revenue decline 30% y-o-y to RM17.6 million, due to the completion of a project in Indonesia in 2023.
Oiltek’s earnings of RM29.6 million for the period exceeded expectations, at 12% above the analysts’ and 14% above consensus forecasts respectively.
Cheong and Mo note that the group’s earnings beat was due to substantial y-o-y gross margin expansions in its 2HFY2024 and 2024, driven by more contributions from the edible and non-edible refinery segment, and higher-than-expected interest income, which grew 1.5 times y-o-y.
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With the improvement in earnings, a higher final dividend per share (DPS) of 1.8 cents was proposed, leading to a total DPS of 2.7 cents, translating to a 44.4% payout ratio.
Meanwhile, Oiltek secured RM207 million in new orders in 2024, bringing its order book to RM355 million as of Feb 12, 2025.
“This is expected to be fulfilled in the next 18 to 24 months,” note Cheong and Mo.
The UOBKH analysts see that Oiltek, being a solutions provider for all vegetable oils, is a beneficiary of what a report by Precedence Researches notes is a global fats and oils market size valued at US$257 billion ($345.1 billion) in 2023, projected to surpass US$403 billion by 2033.
“Furthermore, higher biodiesel blending requirements in Malaysia from B10 to B20 and in Indonesia from B35 to B40 in 2025 will likely boost demand for biodiesel and drive growth in Oiltek’s renewable energy segment.”
Meanwhile, with the international aviation industry’s goal of reaching net zero CO2 emissions by 2050, this would require an increase in sustainable aviation fuel (SAF) production. On this, Cheong and Mo write: “As Oiltek has solutions to treat vegetable oil-based raw materials as feedstock in hydro-treated vegetable oil (HVO) production, the growing demand for SAF could lead to more contract wins for Oiltek in the future.”
As a result, while the analysts have raised their FY2025 and FY2026 earnings forecasts 12% by 11% to RM34.1 million and RM37.6 million, their revenue projections remain unchanged.
“We have ascribed a 10% discount to 1.0x price-to-earnings growth, as we monitor for an improvement in trading liquidity which could lead to a better price discovery for Oiltek. In addition, we think good project execution and more contract wins could lead to further re-rating of the stock,” write Cheong and Mo.
Share price catalysts noted by them include higher-than-expected order wins and better-than-expected gross margins from better economies of scale.
Meanwhile, PhillipCapital analyst Paul Chew expects Oiltek’s order book to be replenished from refinery and biodiesel contracts.
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“We remain upbeat on new orders to be secured this year. We are assuming RM280 million of new projects in FY2025. Areas of opportunity are biodiesel capacity in Indonesia and Malaysia and refining facilities in South America,” writes Chew.
On the other hand, CGS International’s (CGSI) William Tng has similarly kept his “buy” call, but with a slightly lower target price of $1.43 from $1.44 previously.
Tng’s trimming comes from his valuation of Oiltek using its peer sector average FY2026 price-to-equity ratio (P/E), which has declined to 18.3 times now versus 18.4 times in January.
Key re-rating catalysts noted by him include accretive mergers and acquisitions (M&As), while downside risks include order cancellations, unfavourable foreign exchange (forex) movements, a sudden spike in raw material prices and finally, unanticipated disruptions in raw material supply.
As at 3.39 pm, shares in Oiltek International are trading flat at $1.18.
