Oiltek International (SGX: HQU) can trace its roots back to 1980 – when it was incorporated as a vegetable and edible oil process engineering company in Malaysia.
Today, with over 43 years of experience, Oiltek has grown into an established integrated process technology and renewable energy solutions provider in the vegetable oils industry.
For those keeping track of new SGX listings, Oiltek was listed on 3 March 2022.
The company operates 3 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.
Here are 5 things that you should know about Oiltek business footprint.
#1 Oiltek’s Revenue And Net Profit Has Been Steadily Growing Since Listing. What Have Been The Key Factors Driving The Performance
Oiltek has 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.
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.
While Oiltek does not have a formal dividend policy, 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.
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#2 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.
#3 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.
As part of our business strategies and future plans, Oiltek is also 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.
#4 What Is The Group’s Biggest Risk Or Challenge In The Next 1-3 Years That Shareholders Should Be Most Concerned About?
Two of the biggest challenges facing companies like Oiltek are technological disruption and market uncertainty.
With Oiltek’s focus on innovation, we have always embraced technological trends. Our proprietary plant designs have leveraged emergent technology trends such as high energy conservation and full automation. We have also maximised product diversity by having the widest product range, complete vertical and horizontal integration, with the highest safety standards and highest value addition which include the conversion of waste into value-added products like renewable energy.
While companies today increasingly talk about the impact of AI, Oiltek had decade ago adopted a concept similar to AI in our programme logic controls (PLC) for managing the entire operation of a plant. In most of our complicated plants, only one single operator is required in the control unit. Additionally, Oiltek had also adopted a system similar to AI to sense and record all processing data to analyse and decide which subsequent parameter changes are required, including the required scheduled maintenance of equipment. These advanced logic controls had benefited the industry by having less dependency on human involvement in the operational requirements, not just to cut down labour cost but also provide a more reliable and accurate sensing and logical thinking process to control the entire operation and elevate the efficiency, safety and cost effectiveness of production. Oiltek has also leveraged technological advancements in remote access to successfully manage and conduct remote commissioning processes and enabling plant hand-overs in overseas countries without the need to dispatch a technician.
The recent enhancements in AI capabilities can definitely help PLCs and programming by providing new ways to optimise and automate the industrial process so as to raise resultant benefits to a higher level.
The other major challenge is market uncertainty arising from macro changes that could impact industries which are beyond our control. These include political instability, government and tax policy changes, forex changes, geopolitical unrest, trade wars, global directive changes, commodity price hikes and shortages, global financial crises, global pandemics, etc.
However, as there is a good management team driving its resilient business model, Oiltek has demonstrated a proven track record in managing such crises like the Covid-19 pandemic well, while still managing the Group to remain profitable. Moving forward, we have identified that the most relevant risk for us is a shift in market trends. In order to mitigate this, close monitoring, prompt reaction and advanced planning is always key.
#5 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.
Editor’s Note: Some answers for this article were extracted from the SGX 10 in 10 series published on 26 November 2024 and republished with permission. You can read more on Oiltek International (SGX: HQU) on the SGX website.
Read other featured companies from SGX’s 10 in 10 series on the DollarsAndSense website.
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