UOB Kay Hian (UOBKH) has initiated a “buy” call on vegetable and edible oil engineering process company Oiltek, with a target price of S$1.22.
Oiltek is trading at 15 times based on FY2025 estimates, which is at a discount of about 25 per cent as compared to its peers’ average of 21 times.
In a report on Tuesday (Dec 10), analysts John Cheong and Heidi Mo noted that the company had achieved a record order book of RM401 million (S$121.3 million) for the third quarter of this year.
“We expect Oiltek’s orderbook to grow by around 10 per cent annually to RM440 million in 2025 and RM480 million in 2026,” wrote the analysts.
On the back of its strong and growing order book, the company’s earnings are expected to grow by 39 per cent and 15 per cent in 2024 and 2025 respectively by the analysts.
Cheong and Mo also noted how Oiltek has been able to generate net margins of around 9 per cent and a return on equity of 30 per cent over the last three years.
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In addition, it has generated strong cash flows and is presently sitting on a net cash pile of RM104 million as at H1 2024, worth approximately 20 per cent of its market capitalisation.
Considering higher biodiesel blending requirements in Malaysia, and new biodiesel facilities in Indonesia and Malaysia, demand for the company’s engineering services is expected to accelerate.
In particular, the growing importance of sustainable aviation fuel will drive up demand for services offered by Oiltek, and could lead to more contract wins for the company in the future, said the analysts.
With the international aviation industry having set a goal to reach net zero carbon dioxide emissions by 2050, an increase in sustainable aviation fuel production will be required. Production of such fuel could reach 51 million tonnes by 2030, as several countries and regions such as the EU, UK, Japan could mandate flights to use 3 to 10 per cent of sustainable aviation fuel by 2030.
Earlier in September, Oiltek won new contracts worth RM19.5 million from Africa, Central America and Malaysia, through its subsidiary in Selangor.
The analysts said: “Oiltek’s solid track record is evidenced by its ability to deliver close to US$1 billion of total contract value and to win repeat orders regularly from its major customers. It has operations in 36 countries across five continents and services prominent clients in the agricultural commodities market.”
As at 9.08am, shares of Oiltek were trading flat at S$1.
