Broker: UOB Kay Hian
Date of Report: 15 July 2025

Oiltek International: Accelerating Growth in Renewable Energy with Robust Orderbook and Enhanced Shareholder Strategies

Oiltek International: Positioning for Strong Upside on Order Momentum and Recurring Revenue Expansion

Oiltek International (Bloomberg ticker: OTEK SP), a leading provider of renewable energy equipment, is drawing attention with its impressive financial performance, strategic expansion, and a clear focus on value creation for shareholders. As the company navigates new industry trends and regulatory headwinds, it has emerged as a beneficiary of the global shift toward sustainable energy, particularly in the biodiesel and sustainable aviation fuel (SAF) sectors.

Key Highlights and Strategic Developments

• Upside Potential: Target price upgraded by 65% to S\$0.80, implying a 19.4% upside from the current share price of S\$0.67.
• Orderbook Strength: Near-record orderbook, with RM355 million secured as of February 2025, providing robust revenue visibility.
• Recurring Revenue Model: Progressing towards a business model with higher recurring revenue, selectively targeting high-margin projects in SAF and renewable energy feedstocks.
• Shareholder Value Initiatives: Exploring bonus issues, higher dividends, dual listing, and strategic partnerships to enhance investor returns and liquidity.
• Asset-Light, Innovative Business: Maintains a lean workforce (~90 staff) and leverages proprietary technology for competitive advantage.

Shareholder Structure and Stock Performance

• Major Shareholders: Koh Brothers Group (68.1%), Yong Khai Weng (6.4%)
• Market Cap: S\$287.4 million (US\$224.4 million)
• 52-Week Range: S\$0.143 to S\$0.705
• YTD Performance: +93.1%

Growth Catalysts: Industry Tailwinds and Technological Edge

Clarity on US Tariffs Unleashes Capex Spending

With customers gaining clarity on the impact of US tariff policies introduced in April 2024, deferred capital expenditures in new plants and equipment are expected to resume. Oiltek is poised to benefit as these customers finalize orders, providing a strong pipeline for future revenue.

Defensible Moats: Proprietary Technology and Cost Leadership

Oiltek’s competitive advantages include:

• Proprietary equipment design technologies that enhance productivity, quality, and functionality.
• Continuous innovation with a goal of launching at least one new product every six months, with a focus on high-demand segments such as biodiesel, SAF, biomass feedstocks, and renewable energy.
• Asset-light operating model with a lean team, enabling cost competitiveness versus primarily Europe-based competitors.

Recurring Revenue: Selective Expansion in High-Margin Sectors

Oiltek is progressing with its strategy to diversify revenue streams by entering the manufacturing business for recurring income, especially in segments with robust demand such as SAF and renewable energy feedstocks. The approach is disciplined, with Oiltek intending to reinvest profits from plant construction and limit exposure by taking minority stakes, avoiding significant capex commitments.

Enhancing Shareholder Value: Corporate Actions Under Review

To further boost shareholder returns and liquidity, management is considering several initiatives, including:

• Bonus share issues
• Increasing dividend payout
• Active investor engagement and broadening the shareholder base
• Dual listing opportunities and collaborations with strategic partners

A dual listing, similar to that executed by UMS, is not ruled out if it leads to a valuation re-rating.

Financial Performance and Forecasts

Key Financial Metrics (RM Million)

Earnings Upgrades and Outlook

• 2026/2027 net profit forecasts raised by 11%/10%, respectively, due to higher revenue estimates reflecting anticipated order wins in H2 2025.
• Net margin forecasts increased slightly due to improved operating leverage as revenues scale.
• Three-year EPS CAGR (2023-2026F) projected at 30%.

Valuation and Recommendation

• BUY maintained with a target price of S\$0.80, up from S\$0.48.
• Valuation based on a higher 27x 2026F PE, pegged to 0.9x PEG, reflecting increased liquidity and corporate action prospects.
• Valuation multiple is 1.5 standard deviations above Oiltek’s one-year historical mean, justified by strong project execution and contract wins.

Industry Trends: SAF and Biodiesel as Key Growth Engines

Sustainable Aviation Fuel (SAF) – New Avenues for Growth

With the international aviation industry targeting net zero CO₂ emissions by 2050, SAF is expected to contribute 65% of the required emission reductions. Oiltek’s expertise in processing vegetable oil-based feedstocks for hydrotreated vegetable oil (HVO) production positions the company as a prime beneficiary of this trend, opening up opportunities for further contract wins as global demand for SAF accelerates.

Expanding Biodiesel Demand in Southeast Asia

The global market for fats and oils is forecasted to grow from US$257 billion in 2023 to over US$403 billion by 2033, driven by population growth and rising food demand. Regulatory changes, such as higher biodiesel blending mandates (Malaysia: B10 to B20; Indonesia: B35 to B40 by 2025), are expected to fuel further growth in Oiltek’s renewable segment.

Orderbook and Execution

Oiltek’s orderbook remains resilient, standing at RM355 million as of February 2025, nearly matching the previous year’s record. The orderbook is anticipated to be fulfilled over the next 18-24 months, providing strong earnings visibility.

Key Metrics Summary

Share Price Catalysts

• Securing higher-than-expected order wins.
• Achieving better-than-expected gross margins through economies of scale.
• Successful execution of corporate actions to enhance trading liquidity and broaden the investor base.

Conclusion: Oiltek International Well-Positioned for the Next Phase of Growth

Oiltek International stands out as a high-growth, asset-light renewable energy solutions provider with a robust orderbook, innovative product pipeline, and a clear strategy for enhancing shareholder value. With the industry tailwinds from SAF and biodiesel, disciplined expansion into recurring revenue, and a focus on cost competitiveness, Oiltek is well-positioned for continued outperformance. Investors should watch for further contract wins, margin improvements, and successful execution of corporate actions as key triggers for future upside.