• UGL intends to leverage its new 60:40 JV with Repsol in UOC to expand UOC’s scale and reach. UOC’s revenue dropped 18.2% YoY in FY20 due to lower manufacturing ASP and trading revenue but gross margins improved 5.3 ppts.
• Global lubricant market projected to reach US$182.6bn by 2025. Growth in ASEAN expected to be 2.0% CAGR from 2019 to 2029, with growth accelerating from 2024 as its developing economies recover from the pandemic

Company background

UGL is an established, independent lubricant manufacturer with a wide range of high-quality, well-engineered products under its in-house “United Oil” brand and a host of third-party brands. It also trades base oils, additives and lubricants.

Through its 60%-owned United Oil Company (UOC), its new JV with Madrid-listed oil major Repsol (REP SM, Not Rated), the group manufactures a wide range of lubricants and specialty fluids for the automotive, industrial and marine industries. These are distributed to about 40 countries.

UGL has four other businesses: United Innovations, United Supply Chain, United Renewables and United Fuels.

Highlights

1. Leverage JV with Repsol. UOC was a 100% subsidiary of UGL before UGL divested a 40% stake in it to Repsol in November 2019. UOC contributed US$5.39mn to UGL’s net profit in FY20. Its revenue fell 18.2% YoY to US$89.7mn due to lower manufacturing ASPs and trading revenue. However, gross profit increased 3.8% to US$22.5mn on the back of a 5.3ppt improvement in gross margins to 25.1%. Manufacturing margins improved with the help of lower raw-material costs while trading benefitted from higher ASPs. UGL’s network of distributors spans 40 countries. It intends to leverage Repsol’s international brand presence to accelerate the growth and regional expansion of UOC.
2. Global lubricant industry continues to expand. The global lubricant market is projected to reach US$182.6bn by 2025, from US$157.6bn in 2020. This would translate to a CAGR of 3.0%. ASEAN, where UOC derived about 55% of its FY19 revenue, is expected to remain heavily dependent on lubricants. Automotive lubricants account for a larger share of the market than industrial lubricants because the region is not yet fully industrialised. Overall lubricant demand in ASEAN is expected to grow at a moderate 2.0% CAGR from 2019 to 2029. Growth rates are expected to gather pace from 2024 to 2029, as ASEAN’s developing economies recover from the pandemic.
3. Ample means for expansion. UGL has had net cash since its listing in 2016. As at 31 December 2020, net cash was S$9.7mn. The company has also remained debt-free since 4QFY19. This puts UGL in a comfortable position to pursue future acquisitions or business expansion.

About UGL

UGL was founded in March 1999 by Wiranto and Jacky Tan as a holding company for wholly-owned subsidiary, UOC. Operations started in April 1999 when UOC took over a lubricant blending facility from an international oil company. UGL was listed on the Catalist on 8 July 2016.

On 26 November 2019, UGL disposed of a 40% stake in its wholly-owned principal subsidiary, UOC, to Repsol Downstream Internacional S.A., a subsidiary of Repsol S.A.

Apart from lubricants, UGL has four other businesses: United Innovations, which makes nano-fibre oil-absorbent materials; United Supply Chain, which was set up to diversify the group into logistics; United Fuels, which trades petrol-related products; and United Renewables, which is exploring opportunities in material recycling and clean energy.

Source: Phillip Capital Research - 22 Mar 2021