Monday, June 10, 2024

Oiltek International Ltd - Riding major capex cycles


  • 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.

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