21 July 2017
Union Gas Holdings – Established Provider of Fuel Products in Singapore
  • Union Gas Holdings, an established provider of fuel products in Singapore with over 40 years of operating track record makes its trading debut on Catalist today. It has three main business segments: 1) Retail LPG Business, 2) CNG Business, and 3) Diesel Business.
  • The company believes that it is able to leverage on their experience and extensive distribution network to lead the LPG, CNG and diesel businesses across retail and industrial customers in Singapore. It intends to recommend and distribute dividends of not less than 50% of its net profits attributable to shareholders in FY17.
  • SGX lists 37 stocks under the GICS® Trading Companies & Distributors Industry with a combined market capitalisation of S$4.1 billion. In the YTD, SGX’s 10 largest Trading Companies & Distributors stocks have returned an average total return of 5.0%.

Leading Supplier of Bottled LPG Cylinders in Singapore 

 

The bottled liquefied petroleum gas (LPG) cylinders, compressed natural gas (CNG) and diesel market in Singapore is mature with a number of suppliers/operators. Union Gas Holdings, with a long track record of 40 years, is one of the leading suppliers of bottled LPG cylinders with an extensive distribution reach to domestic households in Singapore. The company also supplies CNG to both retail and industrial customers in Singapore. Apart from the LPG and CNG businesses, the company also sells and distributes diesel to both retail and commercial customers.  

 

In its offer document, Union Gas Holdings has identified some potential growth drivers for their business:

  • Steady growth in Singapore’s GDP – The Singapore economy is projected to grow 1-3% in 2017  (source MTI) after the 2.0% growth in 2016. In addition, the International Monetary Fund (IMF) has projected Singapore’s GDP growth to be c.2.2% in 2017 and c.2.5% per annum for the next three years thereafter. Management believes the steady growth is likely to provide support to the company’s business operations and future plans.
  • Opportunity for growth – Management believes 1). they can leverage on in-depth knowledge of the fuel market, 2). its track record in the industry and extensive distribution network to domestic households in Singapore will position themselves for the next phase of growth; and 3). potential attrition of smaller players in the retail LPG industry will enable them to lead the consolidation of the industry, and expand their scale of operations through acquisition of dealers.

 

Union Gas Holdings Ltd’s Catalist IPO

 

Union Gas Holdings Ltd, an established provider of fuel products in Singapore with over 40 years of operating track record, makes its trading debut on Catalist today, contributing an IPO market capitalisation of S$50 million. Some key extracts from the Offer Document include:

 

Company’s Business Strategies and Future Plans

  • Acquisition of dealers for Retail LPG business.
  • Diversify into supply and retail piped natural gas to services and manufacturing industries in Singapore.
  • Expansion of business through acquisitions, JVs, strategic alliances and/or new product offerings.

 

Competitive Strengths by Company

  • One of the leading suppliers of bottled LPG cylinders to domestic households and CNG to retail and industrial customers in Singapore.
  • Extensive distribution capabilities via fleet of more than 100 delivery vehicles.
  • Strong support from related company (UEC Group) for supply of bottled LPG cylinders.
  • Offer quality products and services.
  • Experienced and committed management team with proven track record.

 

Some Key Risks by Company (page 39 of offer document shows complete list of risk factors)

  • Dependent on the UEC Group for supply of bottled LPG cylinders.
  • Reliant on suppliers for supply of natural gas and diesel.
  • Operate in a highly competitive industry; face competition from existing market players & new entrants.
  • Affected by fluctuations in the costs of bottled LPG cylinders, natural gas and diesel sold to the company.
  • Sales of CNG dependent on the natural gas vehicle (NGV) market in Singapore.

 

Financials from Offer Document

  • According to the unaudited pro forma financial statements, Union Gas Holdings generated S$35.7 million in revenue with profit net of tax at S$6.1 million (net margin 17.1%) for year ending 31 Dec 2016 (FY16).
  • While the company currently does not have a fixed formal dividend policy, subject to dividend factors, management intends to recommend and distribute dividends of not less than 50% of its net profits attributable to shareholders in FY17.
  • Revenue breakdown by segment (FY2016)
    • Sales of LPG and LPG-related accessories (59.5% of total revenue) – engaged in the retail distribution of bottled LPG cylinders and sale of LPG-related accessories to mainly domestic households in Singapore
    • Sale of CNG (9.4% of total revenue) operate a fuel station at 50 Old Toh Tuck Road to produce, sell and distribute CNG primarily to NGVs and industrial customers for their commercial use.
    • Sale of diesel (5.1% of total revenue) – Sell and distribute diesel to retail customers at fuel station at 50 Old Toh Tuck Road since August 2015. Also engaged in transport, distribution and bulk sale of diesel to commercial customers.
  • FY17 sales and operations trends observed by company directors (barring unforeseen circumstances)
    • Expect revenue from Retail LPG Business to increase mainly due to increase in average selling price of company’s bottled LPG cylinders, reflecting the increase in cost of purchase of bottled LPG cylinders arising from increase in Saudi Aramco Contract Prices.
    • Expect revenue from CNG Business to decrease in line with the expected decrease in the number of NGVs in Singapore.
    • Expect operating expenses to move in tandem with level of activities to cater for any changes in the scale of the company’s business operations.
    • Expect administrative expenses to increase as a result of the business rationalisation.
    • For FY2017, expect that profit in the financial period may be lower than the corresponding period in the previous year in view of listing expenses and decrease in CNG sales. Consequently FY2017 financial performance may not match FY2016.

Please refer to page 133 of the Offer Document for more information.

 

Valuation

  • According to the Offer Document, Union Gas Holdings’ unaudited pro forma FY2016 EPS (based on comprehensive income) was at 3.6 cents Singapore dollars based on the pre-Invitation share capital of 170 million shares. This implies a price-to-earnings (P/E) ratio of 6.95x, or 6.99x (assuming the service agreement had been in place since beginning of FY16) based on the offer price of S$0.25.
  • This compares with the average market capitalisation-weighted average of 17.1x P/E ratio of the 10 largest Trading companies and distributors stocks listed on SGX.

List of SGX’s 10 Largest Trading Companies & Distributors (GICS®) 

Name

SGX Code

Market Cap S$M

Price S$

Total Return YTD %

Total Return 1 Yr %

Price Change YTD %

Price Change 1 Yr %

P/E

P/B

Dvd Ind Yld %

CWT

C14

1,303

2.130

11.8

2.8

10.4

1.4

16.3

1.5

1.4

Noble Group

CGP

794

0.620

-63.8

-64.2

-63.8

-64.2

N/A

0.2

N/A

Pan-United Corp

P52

354

0.600

11.6

13.4

7.5

7.5

17.9

1.3

6.3

Tat Hong Hldgs

T03

294

0.380

10.7

-33.0

10.7

-33.0

N/A

0.5

N/A

Singapore Myanmar Investco

Y45

132

0.530

-8.6

35.9

-8.6

35.9

N/A

4.0

N/A

Charisma Energy Services

5QT

105

0.010

33.3

-27.3

33.3

-27.3

N/A

1.1

N/A

Hupsteel

BMH

96

0.790

13.8

28.4

13.8

26.6

N/A

0.6

1.3

Yorkshine Hldgs

MR8

92

0.480

-14.3

-44.8

-14.3

-44.8

N/A

N/A

N/A

Hafary Hldgs

5VS

68

0.160

-17.6

-8.1

-20.0

-13.5

8.0

1.3

6.3

HG Metal Manufacturing

BTG

64

0.530

73.4

88.6

71.0

86.0

38.3

0.5

0.9

Average

 

 

 

5.0

-0.8

4.0

-2.5

20.1

1.2

3.2

Market Cap Weighted Average

 

-6.7

-14.2

-7.8

-15.5

17.1

1.1

 

Source: SGX, Bloomberg & SGX StockFacts (data as of 20 July 2017)

 

Additional Information from Offer Document (click here)

 

Company Background

 

Union Gas Holdings is an established provider of fuel products in Singapore with over 40 years of operating track record, with three main business segments 1). Retail LPG Business; 2). CNG Business; and 3). Diesel Business. The company has also embarked on the distribution of health products and household products to domestic households in Singapore since Mar 2016 and Apr 2016 respectively as an ancillary business, which complements its Retail LPG Business through the use of its existing distribution network and fleet of more than 100 delivery vehicles.

 

Business Overview – 3 Segments

  • Retail LPG Business – Primarily involved in the retail distribution of small cylinders and sale of LPG-related accessories (e.g. stoves, hoods, rubber hoses and regulators) to mainly domestic households in Singapore. Union Gas also  sell small cylinders to dormitories and certain industrial customers which require small cylinders for their operations. From time to time, the company supplies small cylinders for corporate and private events and functions. Bottled LPG cylinders are obtained in bulk from UEC Group’s Bottling Plant.
  • CNG Business – Operate a fuel station at 50 Old Toh Tuck Road for the production, sale and distribution of CNG, mainly to retail customers and industrial customers for their commercial use. The fuel station (operates 24 hours a day and open to public) has 14 CNG dispensers with two nozzles each. A significant portion of CNG business revenue is derived from sales of CNG at the fuel station to taxi drivers under the Trans-cab Group which operate CNG-powered vehicles (77.2% of CNG business in FY16).
  • Diesel Business – The fuel station at 50 Old Toh Tuck Road also distributes diesel to retail customers. There are five diesel dispensers with four nozzles each. The company has two 20,000-litre underground diesel storage tanks which houses its diesel supply. Union Gas is also engaged in the transport, distribution and bulk sale of diesel to commercial customers.

 

IPO Details

  • Offer price at S$0.25
  • 60.0 million Invitation Shares (1.28 million Offer Shares and 58.72 million Placement Shares)
  • Estimated IPO market capitalisation at S$50.0 million
  • Use of placement gross proceeds (S$7.5 million)
    • S$4.0 million – Acquisition of dealers for Retail LPG business
    • S$1.0 million – Diversification into supply and retail of piped natural gas to customers in the services and manufacturing industries in Singapore
    • S$0.72 million – General working capital
    • S$1.78 million – Listing expenses

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