Oiltek International Ltd - Order book spikes 5x

• Oiltek announced a heads of agreement with Bioseaga Industries for the construction of a 300 MT/day sustainable aviation fuel (SAF) facility in Sabah worth US$350mn (RM1.4bn). A definitive agreement is expected to be signed within six months. Conditions to the agreement include project financing, regulatory approval, land confirmation and final terms and conditions.
• The RM1.4bn contract will boost the orderbook by five times to RM1.75bn. We expect the project to require 2.5 years to complete. This project will be the 3rd SAF plant in Malaysia after EcoCeres and Pengerang, both in Johor. With jet fuel prices doubling since the Iran war, we expect the SAF plant’s demand and profitability to improve dramatically. Demand for SAF is driven by the increasing commitment to renewables, the use of sustainable waste oil, and energy security to ensure the availability of jet fuel.
• We raise our FY26e and FY27e PATMI by 12% and 322%, respectively. We are assuming 5% of the project is recognised in FY26e and 45% in FY27e. Our target price is raised to S$2.72 (prev. S$1.18). We peg Oiltek to 24x PE FY27e, a 50% premium to listed peers in Malaysia trading at 16x PE, 2 years forward. The premium is justified by growth, high ROE, and an RM100mn net cash balance sheet. We also expect Oiltek to gradually build a recurrent earnings stream from maintenance and ownership stakes in SAF plants. SAF demand is only 0.6% of global jet fuel consumption. Based on airline commitments, demand is expected to grow at a 46% CAGR through 2030. There are opportunities for Oiltek to capture more contracts in the region.