Union Gas Holdings

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#1
IPO document for Union Gas Holdings has been lodged:

http://www.sgx.com/wps/wcm/connect/ca5e2...4baefd1784

An old economy business that is shrinking and does not appear to have any firm prospects.

1) Its largest revenue generator comes from its LPG business, which has shrunk from $24.7m in 2014 to $21.2m in 2016. Landed homes are the remaining customers of LPG, as market hawkers and coffee shops are moving towards piped town gas, which is mainly supplied by City Gas (CitySpring/Keppel Infrastructure Trust). As landed homes get redeveloped in the future with piped town gas, the retailing of LPGs through bottled cylinders will, slowly but eventually, be completely eliminated.

2) Its other business is the retailing of CNG, mainly to CNG-powered taxis, at their sole fuel station along Old Toh Tuck Road. The business has shrunk from $19.6m in 2014 to $9.4m in 2016, as TransCab, which provides close to 80% of this segment's revenue, has not been replacing scrapped CNG-powered taxi. The lease of the CNG station at Toh Tuck will expire in December 2023. Given the rate of the CNG's business decline, it may fold even before the lease is up. Also, Union Gas has an agreement to purchase a certain quantity of gas every year from supplier Pavilion Gas, failing which it has to pay for the difference. It was not mentioned how much it is contracted to purchase.

3) Because of this, modifications were made in 2015 to the CNG station to retail diesel by adding diesel dispensers and storage tanks. Revenue was $0.7m in 2015 and $5.0m in 2016. This is the only bright spark. However, there is a possibility that the station's lease may not be renewed in 2023, especially since the CNG retailing business -- which would have been the main reason for Union Gas to be award the lease -- seems to be dying.


4) Looking at the balance sheet, it has $11m of current assets vs $9m of current liabilities; not much value here. It has no debt. It has $9m of PPE. So what physical assets are investors of Union Gas getting? The CNG/diesel fuel station at Toh Tuck valued at $3.5m, a fleet of trucks retailing LPG valued at $4.57m, and misc ppe $1m. So if the business were to be liquidated, these are the assets to be sold. I'm sure they are worth less when sold. The CNG/diesel fuel station should be written down to $0 if the lease is not renewed.

5) It seems like there isn't much value in its business, or on its balance sheet. Is this why 30m vendor shares, amounting to gross proceeds of $7.5m, are sold? Union Energy Corporation (UEC), which was the ultimate holding company for all of founder Teo Kiang Ang's LPG-related businesses, is not the company being IPO-ed. Instead, he carved out the 3 business (LPG, CNG, and diesel retailing) from UEC for IPO, leaving out the LPG bottling plant business. Why did he do so? Is the bottling plant more lucrative? Union Gas, the company being IPO-ed, is being supplied exclusively by UEC for its LPG cylinders. 

6) It FY16 audited net profit is $3.9m. How much are you willing to pay for this company?
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#2
(13-07-2017, 09:11 PM)karlmarx Wrote: IPO document for Union Gas Holdings has been lodged:

http://www.sgx.com/wps/wcm/connect/ca5e2...4baefd1784

An old economy business that is shrinking and does not appear to have any firm prospects.

1) Its largest revenue generator comes from its LPG business, which has shrunk from $24.7m in 2014 to $21.2m in 2016. Landed homes are the remaining customers of LPG, as market hawkers and coffee shops are moving towards piped town gas, which is mainly supplied by City Gas (CitySpring/Keppel Infrastructure Trust). As landed homes get redeveloped in the future with piped town gas, the retailing of LPGs through bottled cylinders will, slowly but eventually, be completely eliminated.

2) Its other business is the retailing of CNG, mainly to CNG-powered taxis, at their sole fuel station along Old Toh Tuck Road. The business has shrunk from $19.6m in 2014 to $9.4m in 2016, as TransCab, which provides close to 80% of this segment's revenue, has not been replacing scrapped CNG-powered taxi. The lease of the CNG station at Toh Tuck will expire in December 2023. Given the rate of the CNG's business decline, it may fold even before the lease is up. Also, Union Gas has an agreement to purchase a certain quantity of gas every year from supplier Pavilion Gas, failing which it has to pay for the difference. It was not mentioned how much it is contracted to purchase.

3) Because of this, modifications were made in 2015 to the CNG station to retail diesel by adding diesel dispensers and storage tanks. Revenue was $0.7m in 2015 and $5.0m in 2016. This is the only bright spark. However, there is a possibility that the station's lease may not be renewed in 2023, especially since the CNG retailing business -- which would have been the main reason for Union Gas to be award the lease -- seems to be dying.


4) Looking at the balance sheet, it has $11m of current assets vs $9m of current liabilities; not much value here. It has no debt. It has $9m of PPE. So what physical assets are investors of Union Gas getting? The CNG/diesel fuel station at Toh Tuck valued at $3.5m, a fleet of trucks retailing LPG valued at $4.57m, and misc ppe $1m. So if the business were to be liquidated, these are the assets to be sold. I'm sure they are worth less when sold. The CNG/diesel fuel station should be written down to $0 if the lease is not renewed.

5) It seems like there isn't much value in its business, or on its balance sheet. Is this why 30m vendor shares, amounting to gross proceeds of $7.5m, are sold? Union Energy Corporation (UEC), which was the ultimate holding company for all of founder Teo Kiang Ang's LPG-related businesses, is not the company being IPO-ed. Instead, he carved out the 3 business (LPG, CNG, and diesel retailing) from UEC for IPO, leaving out the LPG bottling plant business. Why did he do so? Is the bottling plant more lucrative? Union Gas, the company being IPO-ed, is being supplied exclusively by UEC for its LPG cylinders. 

6) It FY16 audited net profit is $3.9m. How much are you willing to pay for this company?
Thanks for sharing your very down-to-earth analysis of this IPO... Smile
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#3
After a 2.5years wait....Towkay Teo is finally back to share with us his "cashcow"! Smile

https://www.valuebuddies.com/thread-5969...#pid100787

Trans-cab never came back. It seems like either (1) it never managed to reconcile the insurance premium issue, or (2) when it did, the sharing economy disrupted the entire taxi industry and the golden opportunity passed.

Hindsight teaches us that it is all about timing could be everything, sometimes.
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#4
Public tranch is 288x oversubscribed, while placement tranch is 0.99x - in total 7.1x oversubscribed.

Union Gas has a very small public tranch (2% of total) and similar to other "hot" IPOs like Kimly/Spore O&G with very small public tranch (2-5%). This seems to kind of highly assure those who are "in the loop" with a small windfall.

Union Gas placement results: http://infopub.sgx.com/FileOpen/Union%20...eID=462309
Kimly/Spore O&G placement results: https://www.valuebuddies.com/thread-8003...#pid137964
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#5
Although the public tranche was many times oversubscribed. Union Gas is up only 16%, nowhere near the gains of Kimly or SO&G. The market seems quite aware that this 'cash cow' is an old cow...

http://www.businesstimes.com.sg/stocks/h...-ipo-price
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#6
Union Gas signs MOU to buy Semgas Supply's retail business of bottled LPG cylinders
FRI, DEC 29, 2017 - 9:26 PM

UNION Gas Holdings on Friday said it has entered into a non-binding memorandum of understanding with Semgas Supply to acquire the latter's retail distribution business of bottled liquefied petroleum gas (LPG) cylinders and sale of LPG-related accessories to domestic households in Singapore.

Union Gas itself is engaged in the retail distribution of bottled LPG cylinders and sale of LPG-related accessories to mainly domestic households in Singapore, and plans for the acquisition to help further grow its distribution network and customer base.

The vendor has agreed that over an exclusivity period of three months, it will refrain from engaging in any discussions or negotiations with any other person over the sale and purchase of the assets.

The vendor is a wholly-owned subsidiary of Union Energy Corporation, which in turn is a company which Union Gas founder and non-executive chairman Teo Kiang Ang, and executive director and CEO Alexis Teo, have shareholding interests in.

http://www.businesstimes.com.sg/companie...-cylinders

http://infopub.sgx.com/FileOpen/Union%20...eID=483739

Why is Boss Teo injecting Semgas into Union Gas now, rather than prior to IPO?
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#7
(29-12-2017, 10:58 PM)karlmarx Wrote: Union Gas signs MOU to buy Semgas Supply's retail business of bottled LPG cylinders
FRI, DEC 29, 2017 - 9:26 PM

UNION Gas Holdings on Friday said it has entered into a non-binding memorandum of understanding with Semgas Supply to acquire the latter's retail distribution business of bottled liquefied petroleum gas (LPG) cylinders and sale of LPG-related accessories to domestic households in Singapore.

Union Gas itself is engaged in the retail distribution of bottled LPG cylinders and sale of LPG-related accessories to mainly domestic households in Singapore, and plans for the acquisition to help further grow its distribution network and customer base.

The vendor has agreed that over an exclusivity period of three months, it will refrain from engaging in any discussions or negotiations with any other person over the sale and purchase of the assets.

The vendor is a wholly-owned subsidiary of Union Energy Corporation, which in turn is a company which Union Gas founder and non-executive chairman Teo Kiang Ang, and executive director and CEO Alexis Teo, have shareholding interests in.

http://www.businesstimes.com.sg/companie...-cylinders

http://infopub.sgx.com/FileOpen/Union%20...eID=483739

Why is Boss Teo injecting Semgas into Union Gas now, rather than prior to IPO?

Semgas is not been injected into Union Gas. Actually Semgas acquired a business which has portions that overlap with Union Gas (retail distribution of LPG cylinders and products) and is now selling the overlapping portion to Union Gas to consolidate into 1. Semgas itself (described in the IPO prospectus as engaged in the "supply and distribution of LPG to the Commercial Business Segment of the UEC Group’s business")

The SGX announcement in 1.2 ("Information on the Assets and the Vendor") details this out.
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#8
You're right. Thanks for pointing that out.

So Semgas bought an LPG business on 31/08/17, and now decides to sell this business to Union Gas. Since both Semgas and Union Gas are entities under the control of Boss Teo, why did he not use Union Gas to acquire the LPG business directly? Why waste transaction costs?

What are the possible reasons for Teo to do it in this manner?
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#9
Under 1.2, it mentioned that the retail LPG distribution portion "forms a small part" of the LPG business bought by Semgas. Here's what i thought below that simplifies what i think it is:

I could imagine myself owning a chicken farm and 1 day i buy a new animal farm from my friend. There happens to be some chickens in the new animal farm and so I decided to give my new chick-lings some company by moving them to my existing chicken farm.
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#10
That is a very good explanation. Thank you!
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