Is The Stock of Union Gas Holdings Ltd About The Blow Up?
January 13, 2020
Union Gas Holdings Ltd (SGX: 1F2) is a leading LPG distributor in Singapore. In addition, it operates a fuel station under the brand name ‘Cnergy’ at 50 Old Toh Tuck Road. As of 21 December 2019, Union Gas is now valued at S$ 54.9 million in market capitalisation. In this article, I’ll be covering its business model, its latest financial results, and valuation figures. Hence, here are 11 things to know about Union Gas before you invest:
Business 1: Domestic Retail LPG Union Gas supplies bottled LPG cylinders which come in multiple sizes: 4.5 kg, 11 kg, 12.7 kg and 14 kg. From them, the 12.7 kg cylinders is the most popular. They are delivered with a fleet of 120 vehicles islandwide across Singapore. This division had attained growth in profits before tax (PBT), up from S$ 2.2 million in 2014 to S$ 6.2 million in 2018.
Business 2: Fuel Station Union Gas distributes CNG and diesel to NGVs and commercial vehicles for their commercial use. The management team has boosted revenues of diesel in order to compensate for falling CNG sales due to lower NGV vehicles in Singapore. After a drop in 2017, this division has reported as much as S$ 2.5 million in PBT in 2018.
Business 3: Retail LPG (Commercial) On 31 May 2018, Union Gas completed its acquisition of U-Gas for S$ 9.2 million, hence, taking over 40 supply agreements of commercial LNG to hawker centres, restaurants, hotels, coffee shops and factories in Singapore. This division has delivered S$ 0.47 million in PBT in 2018.
Group Financial Results In 2015, Union Gas had recorded a dip in group revenues mainly due to a fall in average sales price (ASP) of bottled LPG cylinders and CNG. The company’s revenues had increased from S$ 35 million levels in years of 2015 and 2016 to S$ 56.4 million in 2018. It is attributable to rising ASP in bottled LPG cylinders, higher diesel sales, and first-year contribution from U-Gas, its newly acquired business which offsetted its ongoing fall in CNG revenues during the period.
But nevertheless, Union Gas had reported continuous increase in gross profits during the 5-year period, rising from S$ 8.2 million in 2014 to S$ 19.3 million in 2018. This, in turn, had led to its continuous increase in its shareholders’ earnings from S$ 2.4 million in 2014 to S$ 6.4 million in 2018.
Cash Flow Statements From 2014 to 2018, Union Gas has generated S$ 23.7 million in positive operating cash flows and had raised S$ 7.5 million from its IPO listing in 2017. Out of which, the company has spent on the following:
– S$ 5.67 million in net capital expenditures (CAPEX). – S$ 1.84 million in acquisition of subsidiary (U-Gas). – S$ 3.12 million in acquisition of intangible assets. – S$ 3.65 million in net repayments of long-term borrowings. – S$ 5.98 million in dividend payments to its shareholders.
Overall, it had increased its cash balance from S$ 4.2 million in 2014 to S$ 15.7 million in 2018. Hence, it shows that it is capable of generating a string of positive cash flow from operations over the 5-year period.
Balance Sheet Strength In 1H 2019, Union Gas has S$ 2.4 million in interest-bearing debt and a total of S$ 27.2 million in shareholders’ equity. Thus, its gearing ratio is 8.65%. In addition, Union Gas has S$ 21.9 million in current assets and S$ 12.8 million in current liabilities. Thus, its current ratio is 1.71.
Latest 12-Month Financial Results From 1 July 2018 to 30 June 2019, Union Gas had made S$ 66.8 million in revenues. From it, it had earned S$ 7.2 million or made 3.16 cents in earnings per share (EPS).
It is a rise from S$ 43.4 million in revenue and S$ 5.1 million in earnings from 1 July 2017 to 30 June 2018. The increase in Union Gas’s sales and profits is attributable to growth in its retail LNG business, sales of diesel and commercial LNG cylinders which has offsetted the fall in CNG sales in the 12-month period.
Group Revenue(S$ ‘000)
Shareholders’ Earnings (S$ ‘000)
Earnings per Share (EPS) (Cents)
Major Shareholders Teo Kiang Ang is the biggest shareholder of Union Gas with as much as 50.61% in direct stakes and 14.50% indirect stakes held within Union Energy Corporation Pte Ltd. Teo is the Non-Executive Chairman of the company.
P/E Ratio As of 21 December 2019, Union Gas is trading at S$ 0.24 a share. Thus, its current P/E Ratio is 7.59. No historical P/E Ratio is provided as it was newly listed in 2017.
P/B Ratio As of 30 June 2019, Union Gas has net assets of 11.9 Singapore Cents a share. Thus, its current P/B Ratio is 2.02.
Dividend Yields In 2018, Union Gas has paid out 1.20 cents in dividends per share (DPS) which is higher than 1.00 cents paid out in 2017. Hence, if Union Gas is able to keep its DPS at 1.20 cents, its current dividend yield is 5.0% per annum.
So, the question is: ‘Should I invest in Union Gas for S$ 0.24 a share today?’
In essence, the company has delivered growth in earnings, is low-debt, and is in a net cash position of S$ 11.6 million. Its P/E Ratio is below 10 and is offering as much as 5% in dividend yields. Currently, I can’t use historical average to assess whether or not, it is undervalued for it is only listed in 2017.
Thus, the answer falls back to the investor to assess his investment needs. If he is happy with the business model, financial results and the stock price, then, he may consider an investment into it. Otherwise, it is better to shop around for other stocks in the market.
Financial Content Machine. Dividend Investor. Produced 450+ Financial Articles featured in KCLau.com in Malaysia and the Fifth Person, Value Invest Asia, and Small Cap Asia in Singapore. Regular Host and Presenter of a Weekly Financial Webinar with KCLau.com. Co-Founded DividendVault.com, an online membership site that empowers retail investors to build a stock portfolio that pays rising dividends year after year in Malaysia and Singapore.