With a customer base of more than 200,000 households, along with hundreds of coffeeshops and hawker centres, Union Gas’ logo is a familiar sight here in Singapore. Besides supplying the liquefied petroleum gas (LPG) that these customers need to do their cooking, the company supplies another thing: great returns for its shareholders.
In this year’s Centurion Club awards, Union Gas is named the company that generated the highest return on equity (ROE) in the utilities sector. Over the three years taken into consideration, the company delivered a weighted ROE of 33.94%, beating the other companies in this category by a huge margin. The second place delivered 9.98%.
Since FY2018, Union Gas has always delivered ROE above 28%, even reaching a high of 38.95% in FY2020. Its full-year earnings for FY2020 ended Dec 31, 2020, jumped 64.7% y-o-y to a record $13.86 million from $8.41 million. Its topline also grew by 9.4% to a record $86.19 million.
Shareholders have also taken notice of the company’s stellar performance, investing and increasing its share price from 25 cents at IPO to a high of $1.21 on July 29. As at Sept 7, the company’s share price stood at 95 cents, valuing it at $217.6 million. As a clear indication of how the company has grown, it recently upgraded its original Catalist listing to the Mainboard.
How did Union Gas do it? In the words of its CEO Teo Hark Piang, it boils down to just one word: trust. Union Gas is a household name trusted by generations. “Whatever we promise to deliver, we must deliver. It’s not just our goods, but also for things like our after-sales support to our clients, that is very important,” says Teo in an interview with The Edge Singapore.
This attribute, held true throughout the years, has helped Union Gas build a wide network and gain brand recognition. “If you serve a customer well, he spreads the word to 10 others, and 10 then spreads to a 100,” Teo reasons.
Despite its position as one of the market leaders, the company is constantly finding ways and means to build a sustainable business that can grow even as the wider environment changes.
On Aug 25, Union Gas announced a $75 million proposed acquisition of Sembas (Asia) Trading, Semgas Supply, and Summit Gas Systems from Union Energy Corp (UEC), which were privately held by Teo’s family.
These companies are involved in the business of supplying and distributing LPG to customers such as hotels, food establishments and factories. They also supply bottled LPG cylinders and are involved in the storage of LPG. Once approved by shareholders at an upcoming extraordinary general meeting to be convened, the transaction is expected to be completed by February 2022.
The acquisition will give Union Gas better control over the “upstream” business. For example, says Teo, Union Gas will have better cost control, and also enjoy better economies of scale, and leading to overall improvement in competitiveness.
The acquisition will also give Union Gas a bigger addressable market. For example, it can expand its distribution of bottled LPG cylinders to the wholesale space, as well as providing, bottling and refilling of LPG cylinders to other dealers and wholesalers.
With the acquisition, the listed company gains assets including two bottling plants and support infrastructure such as five LPG storage depots, 71 delivery vehicles and an entire LPG sales team. One of the bottling plants located at 43 Jalan Buroh, is newly rebuilt and which according to Teo, is “the first LPG bottling plant to be rebuilt in Singapore in 40 years”.
The new bottling plant features modern technologies and has enhanced safety features, making it a valuable asset for the Group.
Some processes, such as the filling of cylinders which used to be manually done, will be automated. The plant features a central control room which will house a plant monitoring system that will replace manual checks on pressure and roto gauges, and provides an overview of the operations, thereby allowing for early intervention and assistance when needed.
The facility is well protected by water sprinklers, water monitors, a robust alarm and emergency shut off system, and gas detectors are installed throughout the plant.
Its three pressurised LPG storage tanks are mounded and buried in compacted sand, as well as encased in a layer of concrete, much like a bunker. This is to eliminate a BLEVE (or Boiling Liquid Expansion Vapour Explosion). According to Teo, this is the only LPG bottling plant in Singapore which employs this method of protection.
New revenue streams
Besides supplying just LPG, Union Gas is exploring new revenue streams. For example, it has expanded into supplying piped natural gas to customers from the packaging, food production, hospitality and waste management industries.
The company is also conducting studies with certain commercial customers to supply LNG to their production plants.
Separately, the company is also involved in the sale and distribution of compressed natural gas (CNG) and diesel fuel at its 24-hour fuel station at 50 Old Toh Tuck Road under the Cnergy brand and to its commercial and industrial customers.
See also: Union Gas has applied to transfer to Mainboard from Catalist board
But with Singapore’s push to eliminate all internal combustion engine vehicles on the road by 2030, Teo reveals that the Group has partnered with Surbana Jurong to study the feasibility of making this station a “multi-fuel” station, complete with electric vehicle (EV) charging stations and hydrogen refuelling stations.
And that’s not all. Teo wants to take this a step further by making the fuelling station entirely self-powered through a combination of solar power and gas-generated power drawn from the natural gas transmission line that it sits atop. The electricity generated can also help in the formation of hydrogen, allowing the station to also refuel hydrogen fuel cells. He notes that most multi-fuelling stations need to draw power from the national electricity grid in order to operate — including providing the power to recharge EVs.
Overseas ventures
Even as the company enjoys brand recognition and strong sales in Singapore, Teo is hungry for more. “Singapore is only this big. We need to look beyond our shores in order to grow.” he says.
As such, in a bid to bring its business to the next level, Union Gas announced in March that it had signed a non-binding letter of intent with logistics company Worldbridge Industrial Developments (WBID), a part of Cambodia’s Worldbridge International Group. The two intend to form a joint venture to supply and distribute LPG in Cambodia. |
Under the proposed joint venture, Union Gas will hold a 55% stake while WBID will hold the remaining 45%, and will provide access to its substantial local business network and connections in Cambodia.
This is important, Teo says. “It’s our first overseas venture,” he explains, “and we need a solid, reliable partner that understands the local regulations and practices so that we can enter the market successfully. We cannot simply go it alone because we are not as familiar as they are.”
Of all the countries in Southeast Asia, why Cambodia? Teo observes that Cambodia is now at the stage where Singapore was about 40 years ago, when the city-state was developing and demand growth for LPG was high. It was at that point in time that Union Gas saw its fastest growth, and he hopes to replicate this in Cambodia if the JV is successful.
Worldbridge Group has investments in areas including logistics, banking, and e-commerce. It is this vast business portfolio that the joint venture strives to tap on and grow its market presence.
Teo says the company used to go aggressively after “every opportunity”, but with these major new projects underway, its focus will shift towards execution – and making sure they work. Teo said, “I want to make sure that the company achieves stable and sustainable growth, continue to build on its trusted Singapore brand, diversify into new growth areas and add an overseas wing,” he says.
