SINGAPORE (Nov 28): United Global, the manufacturer of industrial lubricants, is set to ride Asia’s growing automotive production and industrialisation, says CIMB, with China and Malaysia alone representing 45% of regional demand.

“Heightened emphasis on fuel economy and wear protection also mean higher demand for better quality lubricants,” CIMB analyst Ngoh Yi Sin in a Monday report.

CIMB also notes that United Global, which was listed on the Catalist board in July, has had a 17-year track record.

“Given its cost-plus model, sensitivity to unfavourable movements in crude/base oil prices is minimised, thus protecting United Global’s longstanding record of profitability,” adds Ngoh.

United Global is set to triple its blending capacity to 124,000 metric tonnes per annum with the agreement to acquire a 100% stake in PT Pacific Lubritama. The company expects the $7.6 million acquisition to be partially funded by IPO proceeds and should be earnings accretive upon completion by 1H17.

The company has also entered into various collaborations with energy companies, expanding its network in China, Indonesia, Malaysia and Myanmar, notes Ngoh. Still, the partnership with CNOOC is the most notable, as both companies own the “HydroPure” brand of lubricant products.

“CNOOC will help in the development and promotion of the products within the PRC, increasing United Global’s market share and sales,” says Ngoh.

While 1H16 results may seem dismal, Ngoh cautions that it driven mainly by a 17% drop in average selling prices and a 4% drop in sales volume. However, Ngoh points out that gross margin have been steadily improving from 10.6% in FY13 to 14% in FY15 and 14.5% in 1H16, partially from process improvement and delayed effect of the adjustment in average selling prces.

“For FY16, management targets to achieve comparable financial performance excluding one-time IPO expenses vs. FY15,” says Ngoh.

The company recently declared an interim dividend of 0.5 cent per share, an implied 37.4% payout and an annualised dividend yield of 3.4% for FY16, notes Ngoh. This could be sustainable as United Global is backed by a cash position of 2.2 cents per share and 1H16 operating cashflow of US$5.6 million ($8 million), adds the analyst.

Shares of United Global are trading flat at 29.5 cents.