"With its advanced capabilities, Oiltek is well-equipped to capitalize on this trend, positioning SAF production as its next key
growth engine," says Yon in his Dec 6 report.
Oiltek now has an order book of some RM400.9 million and is seen by Yon to win additional orders in the coming years.
According to Yon, Oiltek’s string of recent order wins can be attributed to firstly the post-pandemic backlog.
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In addition, the company has a distinct capability with its ability to offer a comprehensive range of integrated process technology and engineering services that span the entire vegetable oil value chain. "This unmatched breadth of service sets Oiltek apart from competitors," says Yon.
Last but not least, Oiltek's business rides on rising global need for vegetable oils, due to food security reasons. It sees growing demand for biodiesel and renewables too, and "has been and will continue to be a significant driver".
The company's core markets are now Indonesia and Malaysia but it is eyeing new contracts from Latin America and Africa where margins, according to Yon, are "generally higher". The company is mulling acquisitions too.
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Yon notes that Oiltek operates a asset-light model, is debt-free and does not have a heavy balance sheet. Its cash balance of RM132.5 million represents nearly a third of its market cap.
For now, Oiltek does not have a formal dividend policy but Yon notes that since its listing in 2022, it has maintained a payout ratio of between 40 and 44%.
For the current FY2024, if this payout ratio is held for the current FY2024 at say 42%, Oiltek can be seen to pay 2.3 cents per share, and given the surge in earnings, that would mark a 45.3% y-oy jump in dividend.
Yon believes that given the higher earnings trajectory, the company might pay up to 3 cents for FY2025.
His $1.21 target price for Oiltek is based on 17.8x FY2025 earnings, which is a 25% discount versus comparable Malaysia-listed companies that tend of enjoy higher valuations.
Oiltek shares changed hands at 97 cents ahead of today's lunch break, up 1.04% thus far today and up 321.74% year to date.
