If you frequent the hawker centres of Singapore, it would be hard to miss these huge blue cylinders sitting at the stalls.
The cylinders contain liquified petroleum gas (LPG) and are used to cook the food we love.
One of the providers of LPG cylinders to the hawkers is Singapore-listed company Union Gas Holdings Ltd .
Since its initial public offering (IPO) in July 2017 at a stock price of $0.25, the Union Gas share price has surged 250 per cent to end last Friday at $0.875.
As of the time of writing on Monday, the Union Gas share price rose a further four per cent to $0.91, attracting a query from the Singapore Exchange due to the “unusual price movements”.
Curious investors would be wondering if there’s value in Union Gas and whether it’s worth buying its shares.
Let’s find out more right here!
Union Gas business background
Union Gas has been a provider of fuel products in Singapore for the past 40 years and counting.
It has three main business segments, and they are:
- Retail LPG
- Natural Gas
1. Retail LPG
Under the retail LPG segment, Union Gas distributes and supplies bottled LPG cylinders and is involved in the sale of LPG-related accessories such as stoves and hoods to domestic households.
It is also involved in supplying LPG to hawker centres, coffee shops, and commercial central kitchens.
Union Gas has one of the largest delivery fleets in Singapore with over 200 vehicles to support islandwide distribution.
Its customers can buy LPG through its mobile app, online ordering portal, or simply by scanning QR codes.
For 2020, the retail LPG segment brought in the bulk of total revenue at 79.3per cent.
2. Natural gas
Under this segment, Union Gas operates a 24-hour fuel station under the brand” Cnergy” at 50 Old Toh Tuck Road called Cnergy Station.
At the facility, it produces, sells and distributes compressed natural gas (CNG) mainly to natural gas vehicles and industrial customers for their commercial use.
Union Gas has also diversified into the supply of piped natural gas (PNG) to customers in the services, manufacturing and industrial sector.
Under the diesel segment, Union Gas sells and distributes diesel to retail customers at the Cnergy Station. The company also transports, distributes and sells diesel to commercial and industrial customers.
This segment brought in 19.5 per cent of the 2020 total revenue for Union Gas.
Union Gas financial highlights
For the financial year ended Dec 31, 2020, Union Gas’ revenue rose 9.4 per cent year-on-year to $86.2 million mainly due to higher revenue from its retail LPG business.
However, the growth was partially offset by a decrease in revenue from its other two business segments.
The better showing in its retail LPG business was on the back of Covid-19 restrictions and measures put in place last year. This led to more households cooking and eating at home.
The company’s net profit for 2020 rose 64.7 per cent to $13.9 million, which included $1.5 million from the Job Support Scheme . Excluding this, net profit would have still increased by a high rate of 49 per cent.
Union Gas mentioned in its 2020 annual report that its financial performance for the year was its best-ever since going public.
With the higher net profit, the company increased its 2020 dividend per share to 3.03 cents, up from 1.85 cents a year ago.
Union Gas has a dividend policy of paying out at least 50vper cent of its yearly net profit as a dividend.
The following table highlights Union Gas’ financial performance from 2016 to 2020:
|Revenue ($' million)||35.7||39.2||56.4||78.8||86.2|
|Gross profit ($' million)||11.6||13.8||19.3||29.2||37.7|
|Gross profit margin||32.5 per cent||35.3 per cent||34.3 per cent||37.0 per cent||43.7 per cent|
|Net profit ($' million)||4.0||3.5||6.4||8.4||13.9|
|Net profit margin||11.2 per cent||8.9 per cent||11.3 per cent||10.7 per cent||16.1 per cent|
|Total dividend per share (Singapore cents)||N/A||1.00||1.20||1.85||3.03|
Over the past five years, Union Gas’ revenue grew from $35.7 million to $86.2 million, up 25 per cent on an annualised basis.
Meanwhile, its gross profit rose 34.3 per cent annually, leading to its gross profit margin stepping up from 32.5 per cent in 2016 to 43.7 per cent in 2020. The increase in margin suggests that Union Gas has pricing power .
Similarly, Union Gas’ net profit increased from $4.0 million in 2016 to $13.9 million in 2020.
The company’s balance sheet remains rock-solid. As of Dec 31, 2020, it had $34.2 million in cash and cash equivalents and just $1.7 million in total borrowings.
Union Gas growth prospects
Union Gas’ has shown strong historical financial performance. But can the company still continue its robust track record going forward?
In line with the Singapore government’s push towards going green , Union Gas is collaborating with Surbana Jurong to study and evaluate the potential redevelopment of its existing fuel station at Old Toh Tuck Road into Singapore’s first multi-fuels and energy facility.
The facility will offer renewable solar and micro wind energy solutions, battery storage systems, electric vehicles charging stations, and a natural gas-based power generation station.
Union Gas is also looking to venture overseas to supply and distribute LPG in the Kingdom of Cambodia through a joint venture.
It has already signed a non-binding letter of intent with Worldbridge Industrial Developments Ltd in March 2021 with regard to this.
At Union Gas’ share price of $0.91, it has a historical price-to-earnings (P/E) ratio of 15x and a dividend yield of three per cent. The P/E ratio is on the higher end compared to the past years.
The revenue and earnings spike in 2020, and hence, the higher valuation, could be a one-off thing based on the Covid-19 restrictions that were put in place.
However, if flexible work arrangements become a norm in Singapore going forward and the new ventures by the company take off, Union Gas could continue its strong business performance and the higher valuation could be warranted.
This article was first published in Seedly.