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Oiltek International's FY2025 Profits Come From Turning Waste Into Fuel · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome back to the Deep Dive. Today we are doing something a little bit different.
• 0:12
  Yeah, we are. Usually, you know, when we look at a company with the word oil,
• 0:15
  right there in the name, we are kind of bracing ourselves for a conversation
• 0:19
  about drilling rigs or fluctuating barrel prices, maybe a little bit of environmental guilt. Right, exactly.
• 0:25
  But today, our mission is to look at Oil Tech International Limited.
• 0:29
  And I have to say, if you just judged them by the name on the door,
• 0:33
  you would be completely wrong about what is actually happening inside the building.
• 0:38
  It really is a misnomer at this point. I mean, you hear oil tech and you think
• 0:41
  fossil fuels may be a pump jack out in the desert somewhere.
• 0:44
  Yeah, totally. But what we are actually looking at in these FY 2025 results,
• 0:49
  and this is what makes it such an interesting deep dive for investors,
• 0:52
  is a technology and engineering firm.
• 0:56
  They are positioning themselves right at the choke point of the green energy transition.
• 1:02
  Which is fascinating. They aren't drilling for oil at all. No, not at all.
• 1:06
  They're engineering the actual plants that turn vegetable oils and,
• 1:10
  well, waste into fuel. Right.
• 1:13
  And this deep dive is really timely because they have just wrapped up a pretty pivotal year.
• 1:18
  They moved to the SGX main board in June of 2025.
• 1:22
  Which is a huge deal. It is. That is a significant graduation from the Catalyst Board.
• 1:27
  For you listening, that usually signals better liquidity, more institutional
• 1:31
  attention, and frankly, a lot more scrutiny.
• 1:34
  That move to the main board really is the context for everything we are about to discuss today.
• 1:38
  When a company steps up to the big leagues like that, investors stop looking
• 1:42
  just at the growth story.
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  They start looking very, very hard at the quality of the earnings.
• 1:47
  Quality over quantity. Exactly.
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  And that is where this full year financial report, the one ending December 35,
• 1:53
  2025, gets really fascinating.
• 1:56
  Fascinating is one word for it. Confusing might be another word if you just
• 1:59
  glance at the headline numbers. Fair point.
• 2:01
  Because I was going through the top line figures and there's this immediate paradox.
• 2:04
  Revenue for FY 2025 actually went down.
• 2:08
  Right. It came in at RM211.4 million. That is down about 8.2% from the previous year.
• 2:14
  But, and this is the weird part, their net profit went up by 7.9%.
• 2:19
  It's the kind of divergence that makes you do a double take.
• 2:22
  Seriously, how does a company make more money while selling less?
• 2:26
  Usually, if your sales drop by almost 10%, your profit should take a massive
• 2:30
  hit because you still have all those fixed costs to pay.
• 2:33
  But oil tech did the exact opposite. They sold less, but made more money.
• 2:37
  So that's the mystery we need to solve today.
• 2:40
  How does a company shrink its top line but expand its bottom line?
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  Is this sustainable or is it just some sort of accounting magic?
• 2:47
  Look, it's not magic, but it's a very specific strategic shift.
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  We are seeing a real move from volume to value here. We need to break down the
• 2:55
  margins because that's where the answer lies.
• 2:57
  Okay, let's get into it. But we also need to talk about the invisible factors.
• 3:01
  There's a whole currency story in here, specifically regarding the ringgit and
• 3:05
  the U.S. dollar, that actually hides just how good this performance was.
• 3:09
  Let's start with those operational numbers first. The top line revenue drop.
• 3:12
  So RM230.3 million in FY 2024, down to RM211.4 million in FY 2025.
• 3:20
  In the notes, they attribute this drop to the edible and non-edible oil refinery
• 3:24
  segment. That's their legacy business, right? Correct.
• 3:27
  Building plants that refine palm oil for cooking, mostly.
• 3:31
  Right. That segment dropped by roughly 30.7%. That is a steep decline.
• 3:36
  But you have to remember how this business works.
• 3:39
  Oiltech is an engineering and construction specialist. Who work on massive projects. Exactly.
• 3:44
  This isn't a software subscription business where you get nice recurring revenue every single month.
• 3:49
  You build a huge refinery in Indonesia, you bill for it, and then the project ends.
• 3:53
  So the revenue is just inherently lumpy. Extremely lumpy.
• 3:57
  They finished some major projects in Indonesia and Africa during the last cycle.
• 4:01
  Those rolled off the books. And the new cycle of billing just hasn't fully ramped
• 4:05
  up to replace that specific volume yet. So if this were a retail company, we'd be panicking.
• 4:09
  Oh, absolutely. But for a project engineering firm, this kind of oscillation is pretty normal.
• 4:14
  Okay, so the volume dropped because of the billing cycle. But let's look at
• 4:18
  the profitability because you mentioned the quality of the revenue.
• 4:20
  Gross profit surged by 24.8% to RM 68.7 million.
• 4:26
  That's a massive disconnect from an 8% revenue drop.
• 4:29
  This is arguably the most important metric in the whole document.
• 4:32
  Look at the gross profit margin. In FY 2024, they were operating at a 23.9%
• 4:38
  margin, which is respectable for engineering.
• 4:41
  Yeah, that's solid. But in FY 2025, that margin jumped to 32.5%.
• 4:46
  32.5%. That is a huge expansion.
• 4:49
  That doesn't just happen by accident. What drove that? Did they just start charging
• 4:52
  more for the same work? It's a mix of things.
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  But primarily, as they move into more specialized renewable energy projects,
• 4:59
  the technical barrier to entry gets a lot higher. Oh, I see. Yeah.
• 5:02
  When you are building a standard palm oil refinery, there is plenty of competition.
• 5:07
  But when you are building a highly complex plant to treat waste sludge so it
• 5:11
  can be used for aviation fuel, you have a lot more pricing power.
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  So they are doing harder work and they are getting paid better for it. Precisely.
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  They are executing better on high budget work. They are likely being more selective.
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  Prioritizing those lucrative contracts over just chasing sheer revenue volume
• 5:26
  to keep the lights on. Quality over quantity.
• 5:29
  Exactly. It's a clear sign of a mature management team. They aren't panicking
• 5:33
  about the top line shrinking a bit.
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  They're optimizing for the bottom line. Which brings us perfectly to the engine
• 5:38
  behind this whole shift.
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  We can't really talk about high margins without talking about the renewable energy segment.
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  This part of the report is just explosive.
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  Explosive is the right word for it. The revenue in the renewable energy segment
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  skyrocketed. It went from RM17.7 million to RM17.7 million.
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  Up to RM61.7 million. That is a 249.7% increase year over year.
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  It effectively tripled and then some.
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  And this is where the oil tech name gets really interesting.
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  Because they aren't building solar farms or wind turbines.
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  When they say renewable, they are talking about something much grittier.
• 6:13
  Very gritty. They're talking about waste, specifically P-O-M-E.
• 6:16
  P-O-M-E. Give us the plain English definition of P-O-M-E for the listeners who
• 6:20
  don't work in agriculture. Sure.
• 6:21
  P-O-M-E stands for palm oil mill effluent. For those who aren't familiar with
• 6:26
  the palm oil industry, it is a messy, messy business.
• 6:28
  When you crush the palm fruits, you get the oil, obviously.
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  But you also get this highly acidic, brownish sludge wastewater. The POM. Yes.
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  Historically, this was just a massive liability. You had to treat it and dump it.
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  It releases tons of methane. It's terrible for the environment.
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  So it's basically toxic garbage.
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  And OilTech's technology turns that liability to an asset.
• 6:51
  Exactly. They design the plants that capture the sludge and process it.
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  They can turn it into biogas to actually power the mill itself.
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  Or, and this is more important for this massive growth story,
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  they can treat it to become feedstock for biofuels.
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  They are literally turning industrial waste into energy. Yes.
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  And the geography of this growth is really telling, too.
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  If you look at the report, most
• 7:15
  of this renewable surge came from projects secured in Malaysia. Right.
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  Contrasting with that slowdown in Indonesia and Africa we talked about earlier.
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  That is a key detail. While their traditional refining business in Indonesia
• 7:27
  slowed down, the domestic market in Malaysia for these renewable projects just completely took off.
• 7:32
  It completely validates their diversification strategy. Because if they were
• 7:36
  just a traditional palm oil refinery builder, this year would have looked pretty
• 7:39
  bad. It would have been a rough year.
• 7:41
  But because they pivoted to renewables, they caught the updraft.
• 7:45
  OK, so margins are way up. Renewables are booming.
• 7:47
  Net profit is up nearly 8 percent to roughly RM 32 million.
• 7:52
  But honestly, looking at that 250 percent growth in renewables,
• 7:56
  I would have expected the net profit to be even higher.
• 7:58
  I mean, 8 percent ARTH is good, but it's not earth shattering.
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  And this is where we have to put on our forensic accountant hats for a minute.
• 8:04
  If you just look at the headline profit, you missed the real underlying story.
• 8:08
  There was a significant headwind that hit them in FY 2025.
• 8:12
  You are talking about the foreign exchange loss. I am. The other losses gains
• 8:17
  line item in the statement.
• 8:19
  In the previous year, FY 2024, they actually had a currency gain of RM 2.6 million.
• 8:25
  That obviously boosted their profits then. Right.
• 8:27
  But in FY 2025, they took a massive hit, a foreign exchange loss of RM 8.2 million.
• 8:33
  That is a huge swing. We are talking
• 8:35
  about nearly an 11 million ringgit turnaround in the wrong direction.
• 8:39
  It's a massive profit killer relative to their size. The culprit was the weakening
• 8:43
  of the U.S. dollar against the Malaysian ringgit.
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  Because oil tech reports their
• 8:47
  financials in ringgit, but they do a ton of international business in U.S.
• 8:51
  Dollars. Exactly. So when they hold cash or contracts that are denominated in
• 8:55
  USD and the dollar falls in value, those assets are simply worth fewer ringgit
• 9:01
  when they close the books at the end of the year.
• 9:03
  But let me push back on this a little bit. Is this a real loss?
• 9:07
  Like, did they actually lose that cash? Or is this just a paper adjustment because
• 9:11
  the exchange rate moved on December 31st?
• 9:14
  That is the crucial distinction for an investor to make.
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  A significant portion of this is likely an unrealized translation loss.
• 9:21
  It's an accounting reality.
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  Unless they were literally forced to convert all their USD cash into ringgit
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  on December 31st, at the absolute bottom of the market, they haven't lost the
• 9:32
  money in a practical operational sense.
• 9:34
  It just looks smaller on the balance sheet for this specific snapshot in time. Exactly.
• 9:38
  So let's play what if. If we strip out this currency noise, if we pretend the
• 9:42
  exchange rates just stayed flat, what does the underlying performance actually look like?
• 9:46
  The management actually provided that calculation, which is helpful.
• 9:49
  If you strip out that RM 8.2 million currency loss, the net profit would have
• 9:55
  actually surged by 48.7% to RM 40.2 million. Nearly 50% profit growth.
• 10:02
  See, that feels much more aligned with that massive margin expansion and the
• 10:05
  renewable boom we just discussed.
• 10:07
  It does. And for an investor looking at the long-term health of the company,
• 10:11
  this underlying performance is arguably the much more important number.
• 10:14
  It shows you the true operational velocity. Because the core business is performing
• 10:18
  much stronger than the headline numbers imply.
• 10:21
  The FX loss is unfortunate, but it's macroeconomic.
• 10:24
  It doesn't mean the engineers are doing a bad job or that the technology isn't selling.
• 10:28
  The core engine of the company is running hot. Assuming the currency markets
• 10:32
  stabilize, that profitability will shine through.
• 10:35
  Let's shift gears to the balance sheet, because in an environment where currency
• 10:37
  is volatile and project billings are lumpy, cash is king.
• 10:41
  And looking at their assets, they seem to be sitting on quite a war chest.
• 10:45
  Portress is the term I would use.
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  They have RM99.7 million in cash and bank balances.
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  Almost 100 million ringgit in cash.
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  And to put that in perspective for you listening, what is their total equity?
• 10:59
  Like their net assets? Their net assets are almost exactly the same amount.
• 11:03
  Cash makes up 99.9% of their net assets. Wait, pause right there.
• 11:08
  99.9%. So essentially, if you stripped away the office furniture and the laptops,
• 11:13
  this entire company is just a giant bank account.
• 11:16
  In terms of liquid assets, yes.
• 11:19
  But the number that really stands out to me on the balance sheet,
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  and this is incredibly rare for a construction and engineering firm, is the debt.
• 11:26
  Or rather, the total lack of it. They have zero borrowings. Zero debt.
• 11:30
  Zero. Okay, I'm going to play devil's advocate here for a second.
• 11:33
  Is that actually a good thing? We have a company growing its renewable segment
• 11:36
  by 250%. capital is relatively available.
• 11:40
  Shouldn't they be leveraging up to expand faster? Is zero debt a sign of incredible
• 11:45
  discipline or is it a sign that management is just too conservative?
• 11:48
  That is a very fair challenge.
• 11:50
  Normally in a capital intensive industry, like if you were owning and operating
• 11:53
  power plants, you would absolutely want leverage. But remember the business model.
• 11:57
  Oil tech is an asset light company. They don't own the refineries.
• 12:02
  They design and build them for other people. They don't need to borrow hundreds
• 12:05
  of millions to build a massive factory for themselves.
• 12:08
  Their true inventory is intellectual property and engineering hours.
• 12:12
  Ah, so taking on debt would just mean sitting on even more cash they don't actually
• 12:17
  need to deploy. Exactly.
• 12:19
  And in a Project Pimp business where revenues are lumpy, leverage can be an absolute killer.
• 12:25
  If you have high fixed debt payments every month and you hit a slow quarter
• 12:29
  where no major projects finish up, you can get into financial trouble very, very fast.
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  So by having zero debt, they are completely immune to interest rate hikes.
• 12:38
  Immune to interest rates, and they can weather pretty much any macroeconomic
• 12:42
  storm. It gives them incredible optionality.
• 12:44
  It also gives them the ability to pay us, the shareholders.
• 12:47
  Let's talk about the dividend payout. They proposed a final dividend of 0.7 Singapore cents.
• 12:53
  Combined with the interim dividend of 0.5 cents, that totals 1.2 Singapore cents for the full year.
• 12:59
  For context, is that a generous payout? Well, it represents a payout ratio of
• 13:02
  52.5% the group's net profit.
• 13:05
  For a company that is clearly still in a high growth phase with that renewable
• 13:10
  expansion, paying out over half your profits to shareholders is a very strong
• 13:14
  signal of management confidence.
• 13:16
  They are essentially saying, we have more than enough cash to fund our growth,
• 13:20
  so here is the rest. It's very shareholder-friendly.
• 13:23
  Highly friendly. Before we move off the financial structure,
• 13:26
  I also noticed a note in the documents about a bonus issue that happened in May 2025.
• 13:32
  They issued 286 million new shares.
• 13:36
  For the uninitiated listener, why do companies do this? It doesn't actually
• 13:40
  create any new value, does it? Not directly, no.
• 13:44
  It's exactly like slicing a pizza into more pieces. You still have the exact same amount of pizza.
• 13:48
  But it does achieve two things. First, it increases liquidity.
• 13:51
  Having more shares floating around the market makes it easier for investors
• 13:54
  to buy and sell without moving the price too much. Makes sense.
• 13:57
  Second, it makes the per share price look more affordable to retail investors.
• 14:02
  But a quick warning for anyone doing historical analysis. If you're comparing
• 14:06
  earnings for share from three years ago to today, you have to be careful.
• 14:10
  You need to use the adjusted or restated numbers to account for all those extra
• 14:14
  shares. Otherwise, it will look like EPS suddenly dropped off a cliff.
• 14:18
  Right. Don't let the dilution trick your math. OK, so we've covered the past and the present.
• 14:22
  We have solid margins, profit numbers that were masked by currency but are actually
• 14:26
  very strong, and a fortress balance sheet.
• 14:30
  The market trades on the future. What is the outlook here? Because a 250% growth
• 14:35
  rate in renewables is a very tough act to follow.
• 14:37
  The future growth for oil tech can really be summarized in three letters.
• 14:41
  S-A-F. Sustainable aviation fuel. Yes.
• 14:45
  This is essentially the holy grail of the green transition right now.
• 14:48
  Look, you can easily electrify a passenger car, but you absolutely cannot electrify
• 14:53
  a Boeing 777 flying from London to Singapore.
• 14:56
  The batteries would just be way too heavy. Exactly.
• 14:58
  So the only viable way to decarbonize the aviation industry is to use liquid
• 15:03
  fuel that is made from renewable sources.
• 15:06
  And the demand for this isn't just a corporate nice-to-have anymore,
• 15:09
  right? It's literally becoming law. It is being mandated globally.
• 15:14
  The EU, Singapore, and many other regions are setting hard regulatory targets for 2030 and 2050.
• 15:21
  The commentary in the report cites some staggering data.
• 15:25
  SAF demand in the ASEAN region alone is projected to grow from 15,000 barrels
• 15:29
  per day in 2030 all the way to 700,000 barrels per day by 2050.
• 15:34
  That is exponential growth. That is a completely new global industry being born right in front of us.
• 15:39
  It is. And here's where oil tech fits into that puzzle.
• 15:42
  You can't just pour raw PME or used cooking oil straight into a jet engine.
• 15:46
  It needs to be rigorously pretreated. It needs to be cleaned.
• 15:49
  All the impurities have to be removed so it can be compliant with ISCC standards.
• 15:53
  That's the International Sustainability and Carbon Certification.
• 15:57
  Oil Tech designs and builds those exact pre-treatment plants.
• 16:00
  They're essentially the gatekeepers. So before the raw waste can become jet
• 16:04
  fuel, it has to go through an Oil Tech-style process. Exactly.
• 16:08
  They are selling the picks and shovels for the ASAF Gold Rush.
• 16:12
  And we can see it in their current pipeline.
• 16:14
  They are sitting on an unfulfilled order book of RM 312.8 million right now. That's a huge backlog.
• 16:21
  It gives them fantastic revenue visibility for the next 18 to 24 months.
• 16:26
  But let's look at the risks because we always have to look at the bear case.
• 16:29
  If the massive upside is driven by government mandates, the downside must also
• 16:34
  be tied to government mandates. Absolutely.
• 16:37
  Policy risk is the biggest threat here. And the report flags this specifically with Indonesia.
• 16:42
  Indonesia had a very ambitious plan for something called B50.
• 16:46
  That was a government mandate to blend 50% palm-based biodiesel into their national fuel supply.
• 16:52
  Which would have required a massive build-out of new processing plants,
• 16:55
  huge potential contracts for oil tax. Huge.
• 16:58
  But due to funding issues and technical constraints, the Indonesian government
• 17:02
  abandoned that B50 target.
• 17:04
  They decided to stick with the lower B40 standard. So that potential boom just evaporated overnight.
• 17:09
  It was heavily capped, yes. The baseline growth will still be there,
• 17:12
  but that euphoric blue sky scenario got cut down.
• 17:16
  This perfectly illustrates the danger of relying on policy-driven markets.
• 17:21
  A politician changes their mind or a national budget gets cut,
• 17:24
  and your potential order boat can dry up instantly.
• 17:27
  We actually saw that geographic concentration risk play out in the numbers this year, too.
• 17:31
  Revenue from Indonesia dropped significantly, from RM123.8 million down to RM85 million.
• 17:39
  If the Malaysian market hadn't picked up the slack with those renewable contracts,
• 17:43
  we would be having a very different, much gloomier conversation today.
• 17:47
  That is simply the reality of their business model. They are heavily project
• 17:51
  dependent and region dependent.
• 17:52
  If the global economy experiences high volatility or if geopolitical tensions
• 17:57
  make large companies hesitant to spend capital expenditure on a new plant,
• 18:01
  oil tech will absolutely feel that delay.
• 18:03
  They are not immune to the macro cycle. So to pull all of this together for
• 18:07
  the listener, we are looking at a company that is fundamentally changing its
• 18:10
  core identity. It's a classic transition story.
• 18:13
  They are moving away from being a traditional cyclical engineering firm and
• 18:17
  evolving into a specialized high-margin
• 18:19
  player right in the middle of the renewable energy supply chain.
• 18:23
  They navigated a year where top-line revenue dropped, but they did it by significantly
• 18:27
  improving their operational efficiency.
• 18:30
  Getting that gross profit margin up from 23% to 32.5% is huge.
• 18:36
  And they protected their downside with the genuine fortress balance sheet. Zero debt.
• 18:41
  Massive cash reserves. all while paying investors a 50% dividend yield on profits
• 18:46
  while they wait for this next wave of growth to really kick in.
• 18:49
  And when you look at the underlying profit growth of nearly 50%,
• 18:53
  once you strip out the foreign exchange illusion, it strongly suggests their strategy is working.
• 18:57
  But as an investor, you have to watch those risks regarding shifting government
• 19:01
  policies and the natural lumpiness of massive engineering projects.
• 19:04
  The risks are definitely real. But with an order book sitting over R&312 million,
• 19:09
  they have a very solid financial runway to navigate those challenges.
• 19:12
  It will be fascinating to watch over the next few years. The real question I
• 19:16
  want to leave you with is this.
• 19:17
  With the order book looking so strong and the renewable sector booming like
• 19:21
  we've seen, can oil tech continue to grow that side of the business fast enough
• 19:26
  to completely offset the inevitable cyclical lulls in their traditional oil refining business?
• 19:32
  If they pull that off, they truly are a completely different company than they were five years ago.
• 19:38
  It's the multi-million dollar question. We will definitely be watching the next few quarters closely.
• 19:42
  Thank you so much for walking us through the numbers today. Glad to do it.
• 19:45
  And thank you for listening to this deep dive into Oil Tech International's FY 2025 performance.
• 19:51
  Before we sign off, a quick reminder.
• 19:54
  This content is intended to serve strictly and only as an informational,
• 19:58
  independent, objective summary of recent events and should in no way be interpreted,
• 20:02
  construed or relied upon by any party as inside information or financial advice. See you next time.