10 Questions for Oiltek International

1. What is Oiltek’s business about and what are some key business segments?

• Oiltek is an established integrated process technology and renewable energy solutions provider for the global vegetable oils industry. With over 43 years of experience, Oiltek has designed and built plants in 36 countries across five continents. 
• The company operates three key segments: Edible & Non-Edible Oil Refinery, Renewable Energy, and Product Sales and Trading. 
  • In the Edible & Non-Edible Oil Refinery segment, Oiltek offers engineering, procurement, design, construction, and commissioning (EPCC) services, as well as upgrading and retrofitting existing facilities for edible and non-edible oil refining, downstream specialty product processing and turnkey inside and outside battery limits infrastructure. 
  • The Renewable Energy segment focuses on providing EPCC services for multi-feedstock and enzymatic biodiesel plants, as well as HVO feedstock and biogas methane recovery plants using treated and refined palm oil mill effluent (POME). 
  • Lastly, the Product Sales and Trading segment provides recurring income through engineering component sales, agency and distributorship, and specialty chemical product trading. 

2. Oiltek’s revenue and net profit has been steadily growing since listing. What have been the key factors driving the performance?

• Oiltek’s steady increase in revenue and profit is driven by several factors. Firstly, our resilient asset-light business model, coupled with a strong management team, engineering capabilities, integrated technological know-how, and proven track record, positions us to secure more projects and grow our order book. 
• Secondly, our comprehensive range of integrated process technology and engineering services across the entire vegetable oil value chain sets us apart, with no major competitors matching our complete service offerings.
• Thirdly, the rising global demand for food and vegetable oils, such as palm oil, soybean oil, and rapeseed oil, benefits Oiltek as we provide solutions for these major agricultural commodities. 
• Fourthly, our strong financial position, with healthy cash balances and zero debt, allows us to negotiate better terms with suppliers and provide assurance. 
• Lastly, our geographical expansion has gained greater traction in recent years, with more customers from Latin America and Africa recognising our reliable, innovative, and comprehensive process engineering solutions.

3. Does Oiltek have a dividend policy?

• Oiltek does not have a formal dividend policy, but we have always valued the strong support of our shareholders and are committed to enhancing long term shareholder value. We have maintained our dividend commitment since IPO to recommend and distribute dividends of at least 40% of our net profit. 
• In FY2022, the final dividend declared was 1.2 Singapore cents representing about 43.3% of net profit after tax for the year. In FY2023 final dividend declared was 1.6 Singapore cents per share, representing a 40.7% payout ratio. For 1H2024, we issued our first interim dividend of 0.9 Singapore cents per share, representing 43.9% of our 1H2024 net profit after tax.

4. Can you discuss the impact of commodity price fluctuations on Oiltek’s financial performance and how the company mitigates these risks?

• Fluctuations in commodity prices are the result of market dynamics and forces beyond our control. However, Oiltek does not consider such price fluctuations a material business risk. In reality, these price fluctuations often provide us with good business opportunities, regardless of direction. 
• When commodity prices drop, for example, industry players will tend to identify new product types or higher value additions to diversify from their existing set-up. This market trend will provide new business opportunities for us due to our comprehensive range of product offerings. 
• On the other hand, when commodity prices are trending upwards, industrial players will tend to look to increase the capacity of existing facilities in the form of upgrades or addition of new facilities. Given that commodities are essential products, Oiltek will find business opportunities regardless of price fluctuations.

5. What are Oiltek’s focused markets and why? Are there plans to expand beyond these markets?

• We have many customers, including large MNCs and listed companies, in Indonesia and Malaysia, which have been our traditional markets as well as emerging markets like Africa and Latin and Central America. The continued expansion of our customer base globally will ensure our sustainable growth and enhance our ability to generate higher returns for our shareholders.

6. What are some notable developments that shareholders can look out for or expect in the near to medium term?

• The acceleration of global environmental sustainability will benefit Oiltek’s Renewable Energy segment. For example, Indonesia, the world’s largest palm oil producer, has increased its biodiesel blending mandate from 30% to 35%, targeting 40% by 2025. Malaysia, the world’s second-largest producer, is also committed to its own biodiesel program, currently at a 20% blending ratio for the transportation sector. 
• Furthermore, the aviation industry is moving towards sustainable aviation fuel (SAF), with SAF estimated to contribute to a 65% reduction in emissions that is needed for the industry to hit its 2050 net zero CO2 emissions target. 
• We expect to secure more contracts in both the Edible & Non-Edible Oil Refinery and Renewable Energy segments, while exploring new business opportunities to further boost growth and shareholder value.

7. Does the group have any expansion or acquisition plans and what are the strategies for it?

• As part of our business strategies and future plans, Oiltek is constantly on the lookout for value-added acquisitions and seeks to create recurring income streams by expansion of our business through investments, mergers and acquisitions, joint ventures and/or strategic alliances, if and when we find the right opportunities.

8. What is the Group’s outlook on the significant trends or competitive conditions of the industries that the Group operates in?

• The rising demand for edible and non-edible oils, especially vegetable oils like palm oil, soybean oil, and rapeseed oil, benefits Oiltek. Oiltek remains confident about the long-term outlook of its Edible & Non-Edible Oil Refinery segment. The global consumption of oils and fats is growing with population growth, benefiting the food and beverage, renewable energy, and biodiesel sectors. The global fats and oils market, valued at USD 256.99 billion in 2023, is projected to surpass USD 402.94 billion by 2033, with a CAGR of 4.6% from 2024 to 2033. 
• The focus on global environmental sustainability also boosts our Renewable Energy segment. As mentioned earlier, Indonesia has raised its biodiesel blending mandate and Malaysia is similarly committed. The aviation industry's move towards SAF to achieve net zero emissions by 2050 further supports Oiltek's growth. Oiltek remains optimistic about continued growth in the renewable energy sector, leveraging its strong engineering capabilities and integrated technology to secure more projects and expand into new markets. 
• Despite competition, Oiltek's comprehensive range of services across the vegetable oil value chain and constant technological innovation ensures its competitive position.

9. Sustainability and ESG have increasingly been a key focus, how is your company committed towards sustainability?

• The impact of climate change is evident in rising sea levels, floods and erratic weather patterns, causing irreparable damage on agriculture and industrial output. Oiltek is therefore aware of the pressing need to move towards a low-carbon economy and reduce GHG emissions.
• We believe that sustainability is essential to our long-term success. Our Board and Senior Management oversee all economic, environmental, social, and governance (EESG) factors, integrating them into our strategic direction and policies. As an example, Oiltek is sensitive to the environmental impact across our business operations and is committed to taking steps to reduce our impact, in particular, energy consumption and associated greenhouse gas (GHG) emissions arising from our activities.
• At Oiltek, we also understand our responsibility as an innovative engineering company to tackle climate change issues and are dedicated to reducing our carbon footprint through the engineering, design, construction and performance of the systems and solutions that we provide to mitigate the impact posed by climate change.
• Our products prioritise automation, high energy efficiency, and energy recovery to minimize energy use. We advocate for blending biofuels and biodiesel with fossil fuels to cut carbon emissions, laying a strong foundation for renewable energy. We will also continue to develop new and innovative processes to provide more support and solutions to the sustainability efforts of our existing customers and markets.

10. Why should investors take a closer look at Oiltek?

• Resilient Business Model - Oiltek is a SGX Catalist-listed Agri-Tech company with an asset-light and fast-growing business model with good operational cashflows and zero debt. Our resilient business model, and robust order book driven by our strong management team, has allowed us to weather economic storms in our more than 43 years of operating history.
• Industry expertise and technical know-how – With over 43 years in the global vegetable oil industry value chain, our comprehensive and diverse range of refinery processes meet varied customer needs across all sectors.
• Strong revenue streams and diversified client base – Our healthy current order book of approximately RM400.9 million demonstrates our ability to win projects from our diversified global client base. To date, we have executed numerous projects in 36 countries across 5 continents. 
• Continuous innovation and proprietary patented technology – We are an innovator of process technology, constantly pioneering new and improved engineering solutions. We hold five technology patents with another three pending and we strive to deliver innovations every 180 days.
• Opportunities in Emerging Markets – Besides growth in our traditional markets like Indonesia and Malaysia, we are seeing growing demand from emerging markets such as Africa and Latin and Central America as they seek economic growth and self-reliance.
• Strong and Robust Financial Position - Our robust balance sheet with zero debt and healthy cash and bank balances driven by a strong free cash flow provides us with the ability to reward shareholders with sustainable dividend payouts and to invest in new growth opportunities.
• Opportunities in growing business segments – The push in countries like Indonesia and Malaysia to use biodiesel, and the increasing adoption of SAF in the global airline industry spells opportunities for our Renewable Energy segment.

10 in 10 – 10 Questions in 10 Minutes with SGX-listed companies

Designed to be a short read, 10 in 10 provides insights into SGX-listed companies through a series of 10 Q&As with management. Through these Q&As, management will discuss current business objectives, key revenue drivers as well as the industry landscape. Expect to find wide-ranging topics that go beyond usual company financials.

This report contains factual commentary from the company’s management and is based on publicly announced information from the company.

For more, visit sgx.com/research.

For more company information, visit https://www.oiltek.com.my/

Click here for Oiltek’s 3Q2024 Business Update ended 30 September 2024.