• The order book for Oiltek has been growing at a 50% CAGR over the past four years.
  FY24e is poised to be a fifth straight year of record orders. Oiltek secured new orders
  last week, which boosted its order book by around 30%, currently RM400mn or two
  times FY23 revenue.
• FY23 net profit jumped 51% to RM19.1mn on the back of strong order wins of RM322mn
  (FY22: RM196mn). We believe the company is riding multiple capex cycles. These
  include growth in biodiesel capacity in Malaysia and Indonesia, higher value-added
  products downstream, and expansion of customer base in Africa and Latin America. The
  largest growth opportunity will be the increasing use of sustainable aviation fuel oil
  using palm oil effluents in SE Asia.
• Oiltek has an enviable 31% ROE business that is asset-light and backed by net cash of
  RM132mn (~70% market cap). Its high returns stem from selling proprietary know-how
  and successfully designing, operating, and commissioning customer plants with a 45-
  year track record of project completions. We initiate coverage with a target price of
  S$0.70, or 15x PE FY24e. There are no direct comparables. We peg Oiltek at a discount
  to the engineering sector, which trades at 24x forward PE. FY24e EV/EBITDA is 1x.

Background
Established in 1980, Oiltek is a design and engineering specialist for vegetable oil refineries
and processing plants for major agricultural commodities, including palm (80-90%), soybean,
and rapeseed. Core production processes or products include palm oil refining,
fractionalization, specialty fats, biodiesel, and potentially hydrogenated vegetable oil (HVO)
for sustainable aviation fuel (SAF). The company is based in Malaysia and was listed on the
Catalist in March 2022. Oiltek has customers in more than 34 countries, including major
listed plantation companies. Indonesia accounted for 78% of its FY23 revenue.
Highlights

• Riding multiple capex cycles. Oiltek is dependent on customers’ capex plans, especially
in the palm oil sector. Its growth drivers include: i) higher in biodiesel blending in
Malaysia from B10 (or 10% palm oil) to B20. This will increase the expected biodiesel
tonnage to 1.8mn tonnes. The typical size of a biodiesel plant is 400k tonnes, implying
additional four to five new plants; (ii) an increase in Indonesia biodiesel blend from B35
(since Aug23) to B40; iii) new biodiesel facilities nationwide in Indonesia and Malaysia
for more comprehensive logistics coverage; iv) further downstream integration into
higher value-added products, including specialty fast, animal feed, Rumen fats, cocoa
butter equivalent and phytonutrients; v) Expansion of palm oil refining facilities and
downstream diversification globally such as in Latin America.
• The SAF bounty. There is a growing demand for SAF. IATA projects SAF production will
triple to 1.5mn tonnes in 2024. This would still be only 0.5% of aviation fuels in 2024.
Announced SAF projects could reach 51mn tonnes by 2030. Many countries have
mandated flights to use 3-10% of SAF by 2030. Oiltek has the solutions to treat palm oil
mill effluent (POME) and used cooking oil as feedstock for the production of HVO. HVO
is, in turn, the feedstock to produce SAF.
• Asset-light, strong ROE and cash flow. Oiltek’s key assets are its proprietary process
technologies and a 45-year record of completing projects. It outsources plant fabrication
and installation work to third-party plants, which minimises minimizing capex needs.
Oiltek generates an ROE of 31% despite net cash of RM132mn. The dividend yield was
5% in FY23. We expect dividends to grow by 13% in FY24e.

Background
Oiltek is a design and engineering specialist for vegetable oil refineries and processing
systems for major agricultural commodities, including palm, soybean, and rapeseed. These
refineries produce edible and non-edible oil, related downstream products, and renewable
energy such as biodiesel and biogas. Its key customers are major listed plantation companies.
Edible and non-edible oil refinery construction and upgrade accounted for 78% of revenue
share in FY23 (Figure 1). Still, renewable energy, comprising biodiesel and biogas plants, grew
at a faster rate of 83% YoY (Figure 2).

Oiltek has the technology solution to process waste fats/oil, such as palm oil mill effluent
(POME) and used cooking oil (UCO), as well as other vegetable oil-based raw materials, into
the feedstock for production of hydrogenated vegetable oil (HVO), which is used as
sustainable aviation fuel. Its process technology complies with the International
Sustainability and Carbon Certification (ISCC). Oiltek has delivered its first HVO feedstock
treatment plant that uses POME to a customer in Malaysia.
Some of its notable customers include Wilmar International Limited, Sarawak Oil Palms Bhd,
Bunge Loders Croklaan, FGV Holding

Source: Phillip Capital Research - 10 Jun 2024