CGS International
July 31, 2025

Oiltek International’s Earnings Surge: Margin Expansion, Order Book Strength, and Upgraded Prospects Fuel Bullish Outlook

Strong 1H25 Performance: Margin Expansion Drives Earnings Beat

Oiltek International Ltd, a leading integrated process technology and renewable energy solutions provider in the vegetable oils industry, delivered a robust set of results for 1H25. Despite flat revenue at RM100.8 million versus RM100.5 million in 1H24, the company posted a 37.5% year-on-year net profit increase to RM14.1 million.
Key contributors to the strong earnings included:

• Gross profit growth: 66.3% year-on-year to RM32.4 million, with gross margin expanding sharply to 32.2% from 19.4%.
• Cost management: Cost of sales declined 15.5% year-on-year, thanks to project cost savings and an advantageous shift in product mix.
• Segment mix: Higher revenue contribution from the Renewable Energy segment, which commands healthier margins than the Edible Oil & Non-Edible Oil Refinery segment.
• Operating expenses: Well-controlled, rising just 6.5% year-on-year to RM9.6 million.
• Dividend: Interim DPS of 0.50 Singapore cents declared.
• Foreign exchange impact: RM6.2 million in FX losses due to a weaker US dollar versus the ringgit.

1H25 revenue formed 36% of the full-year forecast (historical 4-year range: 38-50%, average 45%), slightly below expectations. However, 1H25 net profit reached 43% of the full-year forecast (historical 4-year range: 35-45%, average 38%), exceeding expectations on profitability.

Management Outlook: Resilient Despite Macroeconomic Uncertainties

Oiltek’s management remains optimistic about the company’s long-term prospects. While global uncertainties such as US protectionism, tariffs, and ongoing geopolitical tensions persist, the company’s business continues to be driven by robust demand growth in the industries it serves. The overall outlook is expected to remain positive.

Upgraded Forecasts and Target Price: Gross Margin Upside Fuels EPS Increases

The broker has upgraded its FY25-27F earnings forecasts for Oiltek, reflecting gross margin improvements from cost savings and a favorable product mix.

• Gross margin forecasts: Raised by 4.75-6.25 percentage points for FY25-27F.
• EPS upgrades: FY25F (+22.6%), FY26F (+33.3%), FY27F (+43.7%).

The target price has been lifted to S\$1.02 (from S\$0.48), rolling forward to FY27F and pegging valuation at 26.6x P/E, which is 2 standard deviations above Oiltek’s 3-year average P/E multiple. This premium reflects a projected FY25-27F EPS CAGR of 22.2%.

Order Book and Re-Rating Catalysts

Oiltek’s order book stood at a record RM332.5 million as of July 30, 2025, underpinning future growth visibility. The report highlights the following re-rating catalysts:

• Further order wins
• Value-accretive mergers & acquisitions

Downside risks include:

• Order cancellations or delays
• Unfavorable currency movements
• Sudden spikes in raw material prices
• Unexpected raw material supply disruptions

Oiltek International: Financial Performance at a Glance

Peer Comparison: Oiltek’s Premium Valuation Justified by Growth

The broker’s analysis compares Oiltek to regional peers in renewable energy and engineering. While Oiltek trades at a higher P/E than peers, this is justified by its superior growth trajectory and robust return on equity.

ESG and Customer Concentration: Opportunities and Risks

Oiltek International is dedicated to environmental sustainability, integrating decarbonisation and waste-to-energy solutions into its technology suite. The group’s flagship processes convert waste, including sludge oil and high free fatty acids oil, into biofuels. This not only provides customers with clean energy but also helps divert waste away from landfills, reducing methane emissions.
The company adheres to fair labour practices, following the principles of the Tripartite Alliance for Fair & Progressive Employment Practices (TAFEP). Oiltek values diversity, inclusion, and the contribution of older workers: in 2024, 60% of senior management and 35% of managers were aged over 50.
However, Oiltek carries a customer concentration risk. Two customers accounted for 33% of 2024 revenue (three customers made up 37% in 2023). Each of these customers individually contributed over 10% of annual revenue in recent years.

Key Financial and Operational Metrics

• Revenue growth: Accelerating from 14.5% in 2024 to a projected 22.6% in 2025, moderating to 9.7% by 2027.
• Operating EBITDA margin: Expanding from 11.3% (2023) to over 19.9% (2025F) and holding above 20% through 2027F.
• Net cash per share: Growing from RM0.31 (2023) to RM0.58 (2027F).
• ROE: Peaking at 42.1% in 2025F, then easing to a still-strong 35.1% in 2027F.
• Net dividend payout ratio: Consistently at 40% from 2025F onward.
• Balance sheet: Strong cash position, no debt, and increasing shareholders’ equity from RM67.7m (2023) to RM170.5m (2027F).
• Order book: At a record RM332.5m as of July 2025, providing solid revenue visibility.

Price Performance and Shareholder Information

• Share price: S\$0.885 as of the report date, up 60.9% in 1 month, 89.5% in 3 months, and 482.2% in 12 months.
• Market capitalisation: S\$379.7 million (US\$293.7 million).
• Major shareholders: Koh Brothers Eco Engineering (68.1%), Yong Khai Weng (6.3%).
• Free float: 15.6% of shares outstanding.

Conclusion: Oiltek Positioned for Continued Outperformance

Oiltek International stands out in the agribusiness and renewable energy value chain with strong earnings momentum, expanding margins, and a robust order book. Management’s focus on product mix optimisation, cost savings, and sustainability initiatives positions the company for continued outperformance. Investors should watch for further contract wins and potential M&A activity as key drivers for re-rating. However, risks such as customer concentration and FX volatility require ongoing monitoring.
The broker maintains an “Add” rating with a revised target price of S$1.02, reflecting confidence in Oiltek’s growth trajectory and ability to deliver superior shareholder value.