Union Gas Holdings Limited - DBS Research 2017-07-17: IPO Factsheet

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UNION GAS HOLDINGS LIMITED 1F2.SI

Union Gas Holdings Limited - IPO Factsheet

Issue Statistics 

• Offer Price: S$0.25 
• Share Offer: 1.28m offer shares 58.72m placement shares 
• Market Cap: S$50m 
• Share Trading: 21 July 2017 at 9.00 a.m.
• Sponsor, Issue Manager and Placement Agents: CIMB Bank Berhad CIMB Securities (Singapore) Pte. Ltd.

Business 

• Union Gas Holdings Limited is an established provider of fuel products in Singapore with over 40 years of operating track record. Currently, its business can be categorised into three segments: 
  1. Retail LPG Business - retail distribution of bottled liquefied petroleum gas (“LPG”) cylinders and sale of LPG-related accessories to mainly domestic households in Singapore; 
  2. CNG Business - operate a fuel station at 50 Old Toh Tuck Road to produce, sell and distribute compressed natural gas (“CNG”) primarily to natural gas vehicles and industrial customers for their commercial use; and 
  3. Diesel Business - sell and distribute diesel to retail customers at its fuel station.

Competitive Strengths 

Leading supplier of bottled LPG Cylinders to domestic households and CNG to retail and industrial customers 

• Long track record in Retail LPG and the CNG Business has led to “Union” and “Cnergy” being established and trusted brands widely recognised by customers in Singapore.

Extensive distribution capabilities 

• With more than 100 delivery vehicles supplying bottled LPG cylinders and LPG-related accessories to more than 140,000 domestic households, Union Gas operates one of the largest delivery fleets amongst the players in the sale of bottled LPG cylinders to domestic households in Singapore.

Strong support from UEC Group 

• Strong support from the UEC Group, which is one of the largest wholesale suppliers of LPG in Singapore, strengthens the company's position as one of the leading suppliers of bottled LPG cylinders to domestic households in Singapore.

Quality products and services 

• Consistently provides quality products and services and maintains good and close relationships with its customers.

Business Strategies and Outlook 

Acquisition of dealers for retail LPG business 

• Union Gas intends to expand its distribution network and reach of the Retail LPG Business in Singapore and may acquire local existing dealers of bottled LPG cylinders and leverage on its customer base.

Diversification into the supply and retail of piped natural gas to customers 

• Union Gas has obtained the Gas Retailer Licensee which allows the company to supply and retail piped natural gas to customers in the services and manufacturing industries in Singapore. Union Gas aims to launch its Natural Gas Business in 2018 to provide diversification to the Group’s businesses and future growth.

Expansion of business 

• Union Gas may expand its business, in Singapore or overseas, through acquisitions, joint ventures and/or strategic alliances.
• Union Gas may also expand its portfolio of household products and also identify new fuel products for sale and distribution.

Prospects 

Steady growth in Singapore’s GDP 

• The International Monetary Fund (“IMF”) has projected Singapore’s GDP growth to be approximately 2.2% in 2017 and approximately 2.5% per annum for the next three (3) years thereafter. The steady growth is likely to provide support to the company’s business operations and future plans.

Opportunity for growth 

• Union Gas believes the potential attrition of smaller players in the retail LPG industry will provide them the opportunity to lead a consolidation of the retail LPG industry. This will enable the Group to extend its position and expand the scale of its operations in the Retail LPG Business.

Key Risks 

Dependency on the UEC Group 

• Union Gas currently purchases all of the bottled LPG cylinders from the UEC Group and the Retail LPG Business accounted for about 55% to 61% of the total revenue for FY2014 to FY2016. 
• Any negative publicity, concern or adverse development about the “Union” brand may discourage consumers from purchasing its products.

Reliance on suppliers 

• It relies on third-party suppliers for the supply of natural gas and diesel. In the event the company is unable to maintain existing arrangements with these suppliers, they may terminate the supply of their products.

Fluctuations in the costs of bottled LPG cylinders, natural gas and diesel 

• The cost of bottled LPG cylinders, natural gas and diesel is largely dependent on crude oil prices.

Affected by the redevelopment and rejuvenation of housing estates in Singapore 

• In the event there is a change in the population of residential units in Singapore, which facilitates the use of piped gas or electricity as alternative energy sources for heat generation, demand for bottled LPG cylinders may be affected.

Dependence on foreign labour 

• The ability to meet the labour requirements for operational needs and risk of labour shortages or increased costs of foreign labour.

Exposed to foreign exchange risks 

• The Company’s revenue is denominated in SGD and purchases of natural gas are mainly denominated in USD. Fluctuations in the exchange rates would affect its profitability.

Dividend Policy 

• Union Gas intends to distribute dividends of at least 50% of net profits attributable to shareholders for FY2017.

Singapore Research DBS Vickers | http://www.dbsvickers.com/ 2017-07-17

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