KGI Securities analyst Joel Ng believes that Oiltek International is in a favourable direction of growth, as it rides record-high palm oil prices and long-term renewable trends.
“Oiltek will trade at 8.4 times FY2020 price-to-earnings ratio (P/E), a slight premium to locally listed peers such as PEC and Moya Holdings,” says Ng in an IPO note dated Feb 22. “This may partly be justified by the company’s pivot towards renewables related projects and supported by the favourable supply demand dynamics for edible and non-edible oils in the next 12-24 months.”
On Feb 18, Oiltek launched its Catalist initial public offering (IPO) to raise gross proceeds of some $5.2 million.
The issue consists of 22.5 million new shares priced at 23 cents each. Out of which, 22 million shares are set aside for the placement tranche, with the remaining 500,000 shares allocated for retail investors.
The company will have a post-IPO market cap of $33 million. The public offer opened from 6pm, 18 Feb and will close at 12pm on 1 March. Shares will start trading at 9am on March 3.
See: Oiltek International launches IPO to ride on growing renewables space
With regards to the wider palm oil industry, palm oil prices are at all-time highs and expected to remain resilient, according to Ng. “Palm oil prices are likely to remain above MYR 4,700 (US$1,124 or $1,511.45) per tonne over the next six months, according to LMC International,” he says. “In addition, it will still take another 12 months for Southeast Asia’s palm oil production to recover to end-2019 levels, after supply from Indonesia and Malaysia declined in 2020 and 2021.”
Oiltek’s home markets Malaysia and Indonesia make up around a third of total revenue over the past three years, according to the analyst. “Revenue generated from these two countries went up to as much as 78% of total revenue in 1HFY2021, not surprisingly as Malaysia and Indonesia are the top two largest palm oil producing nations in the world,” Ng says.
“Between 60% and 85% of its revenue is generated from clients operating in the edible and non-edible oil refinery business,” he adds. “In the longer term, the company is positioning itself to ride on the renewable energy trend, having grown the revenue generated from its renewable energy segment to 20% of total revenue in FY2020 and 26% in 1HFY2021.”
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Some risks Ng considers include margin pressure due to competition and lower-than-expected new order wins.
Photo: Oiltek
