Oiltek International, which builds biofuel refineries and processing capacity, has seen its share price surge more than fourfold year-to-date as more investors start to appreciate its growing momentum of contract wins. Oiltek is the second-best performing stock on the Singapore Exchange S68 (SGX) year-to-date.
The most recent was an RM45.5 million ($13.5 million) contract in Latin America announced on Oct 29. According to Paul Chew of Phillip Securities, this opens up the possibility of more contracts in this market, which is a leading palm oil producer along with Malaysia and Indonesia.
This new contract brings the cumulative new contracts secured in this current FY2024 ending December to RM197.8 million and its total order book to a record RM400.9 million. Oiltek shares enjoyed additional growth momentum when, on Nov 19, it announced 3QFY2024 ended September earnings of RM8.98 million, up 83.2% y-o-y, bringing 9MFY2024 earnings to RM19.3 million, up 63.9% y-o-y.
The company says it is riding on a long-term trend of growing demand for edible oil that is in line with population growth. “This trend potentially benefits the group as it provides solutions that cater to all types of vegetable oils, including palm oil, soybean oil and rapeseed oil, which are some of the major agricultural commodities in the world,” says Oiltek in its Nov 19 statement.
Buoyed by this recent news flow, Oiltek’s share price has shot up to close at $1 on Nov 20, handily outperforming the broader market, which has enjoyed a gain of around one-third so far this year.
At this level, Oiltek’s share price has over-shot Chew’s Nov 1 target price of 70 cents, which is pegged to 15 times FY2024 earnings. “We believe the current wave of orders includes more turnkey projects and an investment cycle underway in Latin America,” says Chew.
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On Nov 20, Chew raised his target price to $1.19 after Oiltek’s 9MFY2024 patmi surpassed his expectations at 83% of his full-year forecast. “A combination of geographical mix and project timing has boosted 9MFY2024 margins by five percentage points,” he says, adding that 9MFY2024 revenue was lower than expected at 67% of his full-year estimate.
The analyst has raised his earnings estimates by 11% to RM25.8 million, expecting higher gross margins for Oiltek. He has also revised his Singapore dollar and Malaysian ringgit exchange rate assumption to RM3.33, down from RM3.45. However, he has reduced his FY2024 revenue estimate by 10% to RM224.4 million. Chew has maintained his “buy” rating.
Meanwhile, a quick look at Oiltek’s top 20 shareholders list shows a few notable names. Teo Hark Piang, CEO of another Singapore-listed company, Union Gas Holdings 1F2 , holds 450,000 shares, equivalent to a stake of 0.31%. Goi Kok Ming, another of the top 20 shareholders, has the same number of shares. He is the son of Sam Goi Seng Hui, the executive chairman of food and consumer products manufacturer PSC Corp. Both Gois are also on the board of property and hospitality firm GSH Corporation BDX , where the father is the executive chairman and the son is the executive director.
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Investors may also consider another company to capitalise on this momentum: Oiltek’s largest shareholder, Koh Brothers Eco Engineering 5HV , which is listed separately on the SGX. As indicated in Oiltek’s annual report, as of March 15, Koh Brothers Eco Engineering holds 68.14% of the shares. Koh Brothers Eco Engineering is also up 50% year-to-date to close at 3 cents on Nov 20. In contrast, its subsidiary Oiltek’s market cap has already reached $143 million as of Nov 20, valuing Koh Brothers Eco’s stake at some $84.5 million as of the same day — more than its total market cap.
The parent company of Oiltek has also seen signs of business improvement. On Nov 19, it announced winning a $77.6 million contract from the Singapore government for piling, ground improvement and related works at the Toa Payoh Integrated Development site.
The 18-month contract, which began on Nov 19, is set for completion by May 2027. The site was previously home to a restaurant, car parks and the Toa Payoh Sports Complex. The planned integrated development will include sports, healthcare, library and park facilities.
The Toa Payoh contract will increase Koh Brothers Eco’s total order book to $585.7 million. This follows previous wins, including a $200.7 million contract from the PUB for the Tuas Water Reclamation Plant and a $186 million contract from the HDB for the Kallang Integrated Development, which was won together with partner LBD Engineering.
