The IPO will close on 1 March 2022 at 12 Noon and starts trading on 3 March at 9am. The market cap based on the IPO price will be around $32.89 million
Principal Business
The Company is an established integrated process technology and renewable energy solutions provider in the vegetable oils industry, catering 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. The vision is to be a global leader in this space and create a positive impact for its stakeholders as well as the environment.
Oiltek has over 40 years of industry experience with proprietary process technology and know-how as well as presence in more than 30 countries. According to the prospectus, there are 5 key investment highlights.
Financials
It is interesting to note that the revenue has remained "flatish" while the gross profit has improved from RM16.6m to RM27.7m over the last 3 FYs. Gross profit margins have improved from 20% to 31.6% over the same period, while net profit margin improved from 5.3% to 13.8% over the same period. Having said that, the 1H2021 saw a decline in profit margins from 11.8% to 9.2% compared to the same period in 1H2020.
As mentioned in my "concerns", one of which is that given it is project-based, the revenue and profit margins can be "jumpy", as seen by increase in revenue but the decline in profitability for 1H 2021.
Using the order book of RM173m (assuming 75% are fulfilled in FY2022), the revenue for FY2022 will be 129.75m. Assuming net margins is around 9.2%, the net profit will be 11.94m. That will translate into an EPS of 8.34 sen or 2.69 Singapore cents (based on today's exchange rate). This translates into a forward PER of 8.55x.
Dividends
The Company intends to distribute no less than 40% of its net profit attributable to owners of the Company for FY2022 and FY2023.
Assuming a dividend payout of 40% and revenue and profitability stays the same for FY2022, the dividend yield will be 2.69 x 40% divided by 23 cents = 4.7%. Depending on how much the order book is being fulfilled in FY2022, the yield is likely to range between 4% to 5%.
Future Plans
The Company intends to capitalise on its track record and secure more and larger projects, with a focus on the renewable energy sector. It also intends to further advance its process technology and renewable energy capabilities through R&D, JVs and strategic alliances.
The focus on renewable energy is a right one as it rides on the tail coat of ESG and many countries have started to provide incentives for the renewable energy sector in a bid to become carbon neutral (or also known as net zero) and
Singapore intends to achieve net zero by 2030.
History and Share ownership
Oiltek has a long history, starting from 1 Dec 1980 and after a few mergers and acquisitions, ended up being owned by Metax Engineering, a Company listed on SESDAQ (wow... history lesson). Koh Brothers group then acquired a controlling stake of Metax in 2013 and renamed Metax to Koh Brothers Eco Engineering on 29 April 2014.
As you can tell from the table below, after the IPO, the Company is owned 67.44% by Koh Brothers Eco Engineering, a company listed on Catalist. Koh Brothers Eco Engineering ("KBE") is in turn held by Koh Brothers Group LImited (54.82%) and Penta-Ocean Construction Co., Ltd, (28.75%), listed on SGX and and Tokyo Stock Exchange respectively.
What I like about the Company
- Long track record with strong visibility on the order books- The Company has a long and established track record of over 40 years and has successfully designed, built and commercialised over 570 plants in more than 30 countries. Some of the notable customers include Wilmar International, Sime Darby Plantation Berhad, PT Sinar Mas Agro Resources. Oiltek has also proven that it can be profitable while operating on an asset-light business model. It has order book of RM 173m that are expected to be fulfilled over the next 18 months
- Focus on the growing renewable energy sector - this is the most direct way for investors to participate and support companies that focus on ESG and in this instance, the Company helps provide environmental solutions and integration into steam and power generation in the renewable energy space. As you can see from the revenue breakdown, revenue from the renewable energy segment is increasing in a meaningful manner and has grown from 5.8% in FY2018 to 26.2% in 1H2021.
- No indebtedness - It is quite rare to find companies that don't carry debts on its balance sheet these days. While some may argue that it is capital "inefficient", it actually highlights that the Company has been cash flow generative and has managed its treasury functions well through the use of banking facilities
Some of my concerns
- Revenue is mainly project-based and can be lumpy, depending on the number of projects it can secure and percentage completed in each financial year. In addition, significant assumptions are used to estimate the contract costs and these may result in cost overruns. I have no clue how to estimate the revenue and profitability for FY2022 and FY2023
- Exposed to the cyclical palm oil commodities sector and MYR - the Company caters to all types of vegetable oil but given it derives a large part of its revenue from Malaysia and Indonesia, it is exposed to the palm oil sector and that can be cyclical in nature (even though Palm Oil price is at record levels). The business domiciled in Malaysia also means that the financials may be subject to foreign currency risk when converted into SGD
- Small cap and small float - The Company is a small cap and the float will be small given that it is substantially held by KBE. The small cap status means that there might not be any institutional following unless the placement agent is able to convince them to take a stake in the IPO. Having said that, if you see what happened to LS2, a placement that went out of control 😂 and is now under MAS investigation. Hope something similar might happen here?
Mr IPO Chilli Ratings
The Company is listing at an interesting time - the Ukraine and Russian war is creating volatility to the stock and commodities market. Oiltek is listing right on the back of a LS2 Holdings IPO that spiralled out of control (reminds me of the Mid-Continental IPO saga). The fundamentals of the Company are good - profitable with no debt, increased focus on the renewable energy space, record palm oil prices as well as reasonable valuation with strong intent to pay dividends.
For these reasons, I am going to give it a 3 Chilli Ratings. Given the small float, it will be tough to get the shares from applying at the ATM.
Do note that Mr. IPO is vested from the placement tranche.
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Comments
May I know if one is to apply the IPO placement share, can he still apply the IPO in the public portion? Thanks.
Are u pressing somemore at the atm?