In-Depth: FA and TA review of Union Gas Holdings Limited

Corporate Profile

Listed on the Catalist board of the Singapore Exchange Securities Trading Limited on 21st July 2017, Union Gas Holdings Limited (“Union Gas”) is an established provider of fuel products in Singapore with over 40 years of operating track record. Its three key businesses comprise of Retail Liquefied Petroleum Gas (“LPG”), Compressed Natural Gas (“CNG”), and Diesel.

Union Gas sells and distributes diesel to retail customers at its “Cnergy” fuel station in 50 Old Toh Tuck Road and transports, distributes and bulk sells diesel to commercial customers. The Group also produces, sells and distributes CNG at its fuel station and is one of the leading suppliers of CNG primarily to natural gas vehicles (NGVs) and industrial customers for their commercial use.

Group Structure for Union Gas

Key Statistics

Past Financial Performance

For FY2019, Union Gas’s revenue grew by 39.8% year-on-year to S$78.8 million. The surge in revenue can be seen from:

• Increase in sales of LPG cylinders and LPG-related accessories to household in Singapore

• Increase in sales of commercial LPG supply to hawker centres, eating houses, coffee shops and commercial central kitchens

• Increase in sales of diesel to retail customers and bulk sale of diesel to commercial customers

With the surge in revenue, Union Gas’s profit after tax saw an increase of 31% year-on-year to S$8.4 million.

The positive results also extend to the latest 1H FY2020 results as shown below.

Latest 1H FY2020 Result Highlights

For 1H FY2020, Union Gas’ revenue has grown by 27.2% year-on-year to S$43.2 million. The good set of results can be attributed to:

• A higher revenue contribution from LPG business

• Partially offset by decrease in revenue from Diesel and CNG business

In terms of business segments, Union Gas’ revenue from the Retail LPG Business rose 61.6% year-on-year to S$34.0 million in 1H FY2020. This was mainly due to the Group’s expansion of its commercial business segment (B2B) to supply LPG to eating houses, coffee shops and commercial central kitchens.

While the Retail LPG Business performed strongly as a result of the Circuit Breaker measures, the restrictions on movement and business activities affected sales of both Diesel and CNG Business, which registered lower revenues of 26.9% and 49.0% to S$8.7 million and S$0.5 million respectively.

With a higher gross profit margin and a surge in other income and gains, Union Gas’ profit after tax has increased by 76.7% year-on-year to S$7.0 million.

Latest Development – Diversify into Piped and Liquefied Natural Gas

In the press release dated 26th November 2020, Union Gas has announced the Group’s diversification into the supply of Piped Natural Gas (“PNG”) and Liquefied Natural Gas (“LNG”) to customers in the services and manufacturing sector.

In addition, Union Gas has successfully secured contracts to supply PNG to four customers who hail from the packaging, food production, hospitality and waste management industries.

The Group has also signed a letter of intent with a potential 5th customer to conduct technical and feasibility studies to supply LNG to its food production plant. If successful, the Group believes this development will pave the way to offer environmentally-friendly alternative fuel to more customers in Singapore. The total annual worth of these contracts is approximately S$2 million.

Executive Director and Chief Executive Officer, Mr. Teo Hark Piang, said:

“Although we had our license and were ready to supply and retail PNG and LNG since 2017, it was also in that year that we were publicly listed. At that time, we made a decision to focus on growing and expanding our existing business to gain momentum to be on the right trajectory of growth.

As our existing business has since gained sufficient traction, we felt that now is the right time to revisit our plans to offer PNG and LNG and promulgate this gas as a viable, sustainable, and environmentally friendly alternative fuel.

We are encouraged that this new business is off to a good start with four customers and potentially a fifth coming onboard soon. Union Gas is a well-recognised and trusted homegrown brand known for quality products and reliable services and we intend to leverage this track record and our industry know-how to grow this new segment of our business.”

Technical Analysis for Union Gas

Based on the weekly chart for Union Gas, after a strong run-up starting from April 2020 of around S$0.20, its share price continues to be in an uptrend and has hit a record high of S$0.54 before retracing back to below S$0.50.

The retracement has resulted in a nice rounding bottom, which resulted in a rebound in the share price. This can be confirmed from the Moving average convergence divergence (“MACD”) histogram, which has turned green by the week. Furthermore, there are currently no signs of any crossover of the MACD, which signals the uptrend will likely continue.

However, investors should take note of the decline in trading volume in recent weeks and the Relative Strength Index (“RSI”) went up to 76, which indicates the stock is trading near the overbought level of 80.

Conclusion & Management Outlook

With a strong financial performance for 1H FY2020 and the successful diversification into the distribution of PNG and LNG, Union Gas should see a better performance for 2H FY2020 and in the long term.

Executive Director and Chief Executive Officer, Mr Teo Hark Piang, said:

“These are truly unprecedented times, which no one could have predicted. We are thankful that our diversified business operations and customer segments enabled us to remain resilient during this period when many businesses are closing as a result of the economic fallout from COVID-19.

The HY2020 performance of our Retail LPG business continued to affirm the two strategic acquisitions we made in 2018, which increased our non-contractual domestic customer relationships and paved the way for further expansion of our commercial segment. We will continue to explore and evaluate other strategic upstream and downstream opportunities as well as other complementary businesses that can add value to the Group and grow our business.”

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