Koh Brothers Eco unit Oiltek launches IPO to raise S$5.2m in gross proceeds

OILTEK International, a subsidiary of Catalist-listed engineering services company Koh Brothers Eco Engineering (KBEE Group), on Friday (Feb 18) launched an initial public offering (IPO) of 22.5 million new ordinary shares at S$0.23 each.

Following its listing on the Catalist board of the Singapore Exchange, Oiltek will be spun off from KBEE Group, although the latter is expected to retain 67.4 per cent interest in the solutions provider in the oils and fats industry.

In a call with reporters on Tuesday, ahead of the launch, Henry Yong, Oiltek's executive director and chief executive officer (CEO), said the IPO is being pursued at a time when the company's order book is at a "historical high" - some RM173.1 million (S$55.6 million).

The orders are expected to be fulfilled over the next 18 months, Yong noted, further stating that Oiltek is expecting an increase in overall revenue in line with the order book, barring any unforeseen circumstances.

The company provides refinery processes and engineering solutions for use across different sectors of the vegetable oils industry value chain globally.

These comprise services for renewable energy industries including the engineering, procurement, designing, construction and commissioning of multi-feedstock biodiesel, enzymatic biodiesel, winter fuel, and palm oil mill effluent biogas methane recovery plants.

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It is now eyeing the strong growth prospects in the renewable energy space, with Yong stressing opportunities since several countries had mandated the blending of mineral diesel with biodiesel in their efforts to cut down carbon emissions.

Francis Koh, the group CEO and managing director of the Koh Brothers Group, said Oiltek is in "expansion mode", adding that listing it would allow the company to be "more independent" in raising funds for itself.

"The basic fund is good for them, so that in the future, they can raise more funds for its expansion plans," said Koh, who is also a non-executive director at Oiltek.

In its press statement, Oiltek said the IPO is expected to raise gross proceeds of S$5.2 million and net proceeds of S$3.6 million, excluding estimated listing expenses.

Of the net proceeds, 72.5 per cent are earmarked for working capital to expand Oiltek's business operations through securing more projects and projects of a larger scale.

The rest will go towards the expansion of its business through investments, mergers and acquisitions, joint ventures, and strategic alliances.

Friday's invitation represents 15.7 per cent of Oiltek's post-invitation share capital of 143 million shares.

The 22.5 million new shares on offer comprise 500,000 offer shares by way of public offer and 22 million placement shares by way of placement.

Based on the issue price of S$0.23 per new share, Oiltek is looking at a post-invitation market capitalisation of about S$32.9 million.

Oiltek, meanwhie, notes that it does not have a formal dividend policy yet.

Nevertheless, its board of directors intends to recommend and distribute dividends of not less than 40 per cent of its net profits for the 2022 and 2023 financial years to reward shareholders for their participation in the company's growth, it said.

The invitation will close at noon on March 1, with the listing and trading of Oiltek's shares expected to commence on a "ready" basis at 9 am on March 3.

SAC Capital is the sponsor, issue manager, underwriter and placement agent in relation to the invitation.

For the half year ended June 30, 2021, Oiltek reported an 11.2 per cent drop in net profit to RM4.4 million, from RM4.9 million in the same period a year ago.

Revenue was up 13.2 per cent to RM47.2 million, as increases in its renewable energy and product sales and trading segments more than offset the decrease in its edible and non-edible oil refinery segment.

Meanwhile, its net profit surged by 172 per cent to RM12.1 million for the year ended Dec 31, 2020, from RM4.4 million in FY2018. Revenue inched up 5.1 per cent to RM87.5 million for FY2020, up from RM83.3 million in FY2018.

Asked if Oiltek's business would be impacted by the recent hike in commodity palm oil prices, Yong said the situation could turn out to be a positive catalyst for the company.

"As long as the palm fruits start to be harvested from the matured plantation and crude palm oil is produced, a refinery plant will need to be in place to process the oil, regardless of what the crude palm oil prices are.

"Therefore, we are actually out of the pricing equation and the hike in palm oil prices is never any impact to our business," he said.

Under such an environment, Yong also believes that most plantation owners would have a higher budget for vertical downstream expansion and integration.

KBEE shares closed unchanged at S$0.048 on Friday.