- 1H26 revenue/PATMI were below expectations at 32%/27% of our FY26e forecast. The strategic focus has been to secure recurrent income and new renewable energy projects, namely sustainable aviation fuel (SAF). This has led to weakness in EPCC order flows. 1H26 adj. PATMI declined 27% YoY to RM12.5mn.
- The US$350mn SAF project in Sabah by BioSeaga Industries is still proceeding with planned milestones, including land acquisition. The Global SAF and Energy Fund (managed by Bank of China) has acquired a 2.8% stake in Oiltek. We believe the fund can be an important partner for Oiltek in financing future SAF projects. The fund mentioned that it is currently looking into investing in Sarawak for SAF development.
- We lower our FY26e/FY27e PATMI by 34% and 24%, respectively. We removed our assumed revenue recognition of the Sabah SAF in FY26e. Our FY27e forecast applies a 30% discount to planned SAF billing. Our target price is lowered to S$2.00 (prev. S$2.72). We peg Oiltek to 24x PE FY27e, a 10% premium to listed peers in Malaysia trading at 21x PE. The premium reflects the growth, high ROE, and an RM95mn net cash balance sheet. We believe the underlying build-out of SAF plants in the region is underway to meet mandatory blending mandates. Malaysia has the advantage of a more abundant feedstock from palm oil mill effluent.
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