We are a PRC-based maritime environmental protection equipment and system provider serving customers from different regions. We ranked third among ship exhaust gas cleaning system providers based in China and fourth among all ship exhaust gas cleaning system providers in the world in terms of the volume of total number of completed orders during 2023 and the cumulative on-hand orders as of December 31, 2023 for ship exhaust gas cleaning systems according to Frost & Sullivan. Our marine exhaust gas cleaning systems (which mostly includes the ship exhaust gas cleaning systems) contributed to the majority of our revenue during each year or period of the Track Record Period representing approximately 78.7%, 64.7%, 66.8%, 79.9% and 60.7% of our total revenue, respectively, in 2021, 2022 and 2023 and for the six months ended June 30, 2023 and 2024. In addition, a significant portion of our revenue was derived from a limited number of customers during each year or period of the Track Record Period. Our five largest customers for each of the years ended December 31, 2021, 2022 and 2023 and for the six months ended June 30, 2024 contributed to approximately 90.5%, 76.1%, 84.3% and 89.4% of our total revenue, respectively.
We commenced our business in 2017 by offering our first product, the ship exhaust gas cleaning system. We have now developed and commercialized various maritime environmental protection equipment and systems. In particular, our equipment and systems aim to help customers such as shipowners in reducing sulfur and GHG emissions. In addition, we aim to help our customers in upgrading the life quality for their ship crew members, by offering interior design and supplying equipment and systems that improve the onboard living conditions and enhance maritime operations.
Furthermore, the demand on the Group’s equipment and systems is stimulated by various ESG- related requirements. For example, the IMO set a sulfur cap of 0.5% on fuel oil, effective from 2020, and introduced measures such as the EEXI and CII, effective from 2023. On July 7, 2023, the IMO revised its GHG emission reduction strategy, targeting net-zero emissions by 2050 with interim milestones. In addition, the European Union has introduced the EU Emissions Trading System for shipping, starting in 2024, and the upcoming FuelEU Maritime regulations for 2025. The ever-evolving ESG regulatory framework contributed, and will continue to contribute, to the growth of the maritime environmental protection equipment and system market.
According to Frost & Sullivan, the global maritime environmental protection equipment and system market increased from US$753.4 million in 2017 to US$3,102.2 million in 2023, representing a CAGR of 26.6%, and is expected to increase to US$11,384.1 million in 2028, representing a CAGR of 29.7% from 2023 to 2028. We believe that our equipment and systems and business can benefit from the potential growth in the global maritime environmental protection equipment and system market.
OUR BUSINESS MODEL
Our equipment and systems
We have a suite of maritime environmental protection equipment and systems, helping our customers to pursue more effective and sustainable business operations while meeting various ESG requirements set by the IMO. The equipment and systems include marine exhaust gas cleaning systems, marine energy-saving devices, marine clean-energy supply systems and maritime services. We customize our equipment and systems to tailor to the unique needs of each customer. Our marine exhaust gas cleaning systems provide an option to our customers to reduce sulfur emission and we also offer other equipment and systems to cater for different ESG requirements set by the IMO in the long term. Our major customers generally procure multiple equipment and systems from us.
During the Track Record Period, the gross profit margin of our ship exhaust gas cleaning systems for newbuildings was generally higher than that for retrofit in-service ships, mainly because newbuildings often came in series with similar design, allowing us to share and save on design costs, as opposed to retrofit in-service ships, which may incur design costs such as those related to 3D scanning provided by external suppliers and modification designs.
In 2022, the gross profit margin of our ship exhaust gas cleaning systems for retrofit in-service ships was much lower than that for newbuildings, mainly because we procured the tower bodies from the OEMs for certain orders related to retrofit in-service ships we obtained in 2020 rather than manufacturing ourselves. We have commenced our commercial production only since June 2021, so we placed orders with OEMs to meet the original delivery schedule for certain orders related to retrofit in- service ships before such production. However, delays in the delivery and installation schedules of such ships led to the completion of these orders in 2022 along with the relevant revenue recognition, resulting in a relatively lower gross profit margin for the year.
In 2023, the gross profit margin of our ship exhaust gas cleaning systems for retrofit in-service ships was similar to that for newbuildings, mainly because (i) we completed several orders related to retrofit in-service ships with tight delivery schedule and charged higher sales prices, leading to relatively higher gross profit margin, and (ii) in the second half of 2023 we completed several orders related to retrofit in-service ships with similar design, which allowed us to share and save on design costs.
For the six months ended June 30, 2024, the gross profit margin of our ship exhaust gas cleaning systems for retrofit in-service ships was much lower than that for newbuildings, mainly because we only completed four orders for in-service ships, which involved scrubbers with unique diameter size pursuant to customers’ request, thereby increasing the design costs. Without a corresponding material adjustment in the selling price to maintain competitiveness, the gross profit margin of such orders was lowered as a result.
The average selling price of our ship exhaust gas cleaning systems for newbuildings in 2021 and 2022 and for the six months ended June 30, 2023 was lower than that for retrofit in-service ships mainly because the orders for retrofit in-service ships involved additional modification costs (including on-site 3D scanning and modification designs, etc.), which led to a higher average selling price.
Although usually orders related to retrofit in-service ships have higher unit selling price due to the involvement of modification costs, the average selling price of our ship exhaust gas cleaning systems for retrofit in-service ships in 2023 and for the six months ended June 30, 2024 was lower than that for newbuildings mainly because the orders we completed for retrofit in-service ships involved the scrubbers with smaller diameters pursuant to customers’ request, which have lower costs and lower average selling prices compared to those for newbuildings. As the diameter of the scrubber increases, the amount of steel used in the scrubber also increases, leading to a rise in the cost of the scrubber. Additionally, the configuration of related system equipment, such as seawater pumps and variable frequency drives (including their quantity and power), will also need to be enhanced.
The decrease in the average selling price of our ship exhaust gas cleaning systems during the Track Record Period was primarily caused by the decrease in the average selling price of our ship exhaust gas cleaning systems for retrofit in-service ships during the same period. The decrease in the average selling price of our ship exhaust gas cleaning systems for retrofit in-service ships in 2022 was primarily due to one completed order which involved a smaller scrubber with a 2.8-meter diameter while the completed orders in 2021 did not involve such small size scrubbers. In 2023, the decrease in the average selling price of our ship exhaust gas cleaning systems for retrofit in-service ships was mainly because the completed orders predominantly involved scrubbers with smaller diameters as requested by our customers compared to the completed orders in 2022. For the six months ended June 30, 2023, we provided the installation services for two orders involving ship exhaust gas cleaning systems which were normally provided by third-party shipyards or shipbuilder customers and one order involving dual scrubbers as per customers’ request and therefore they had a higher average selling price due to the additional installation services and one more scrubber provided. However, we did not provide such special request from customers in the completed orders for the six months ended June 30, 2024, resulting in the decrease in the average selling price of our ship exhaust gas cleaning systems for retrofit in-service ships for the same period. The average selling price of our ship exhaust gas cleaning systems for the six months ended June 30, 2024 was the lowest during the Track Record Period mainly due to an increase in the portion of revenue from newbuilding orders along with their decreased relevant average selling price as a result of smaller diameters of scrubbers delivered for the same period.
We had the movement of order backlog (by order number and value) and amounts to be recognized as revenue subsequent to November 27, 2024 as follows:
(i) Marine exhaust gas cleaning systems: we had 263 orders on hand as of November 27, 2024, including 24 orders for ship exhaust gas cleaning systems and 239 orders for spare parts, with a total contract value of RMB174.4 million, of which 188 orders, including four orders for ship exhaust gas cleaning systems and 184 orders for spare parts, with a total contract value of RMB45.2 million are estimated to be completed for the two months ending December 31, 2024. The rest of 64 orders (consisting of 18 orders for systems and 46 orders for spare parts) and 11 orders (consisting of two orders for systems and nine orders for spare parts) with a total contract value of RMB113.9 million and RMB15.3 million are estimated to be completed in 2025 and 2026, respectively.
(ii) Marine energy-saving devices: we had 27 orders on hand with a total contract value of RMB35.4 million as of November 27, 2024, of which 19 orders with a total contract value of RMB24.5 million are estimated to be completed for the two months ending December 31, 2024. The rest of eight orders with a total contract value of RMB10.9 million are estimated to be completed in 2025.
(iii) Marine clean-energy supply systems: we had 70 orders on hand with a total contract value of RMB134.5 million as of November 27, 2024, of which 16 orders with a total contract value of RMB30.9 million are estimated to be completed for the two months ending December 31, 2024. The rest of 41 and 13 orders with a total contract value of RMB79.7 million and RMB23.9 million are estimated to be completed in 2025 and 2026, respectively.
(iv) Maritime services: we had 1,297 orders on hand with a total contract value of RMB258.1 million as of November 27, 2024, of which 577 orders with a total contract value of RMB35.8 million are estimated to be completed for the two months ending December 31, 2024. The rest of 488, 222, eight and two orders with a total contract value of RMB124.4 million, RMB59.0 million, RMB30.2 million and RMB8.7 million are estimated to be completed in 2025, 2026, 2027 and 2028, respectively.
Source: ContiOcean (02613) Prospectus (IPO Date : 2024/12/31) |