Good News on Listing | Frost & Sullivan Assists InterContinental Shipping Group Holdings Limited to Successfully List on the Hong Kong Stock Exchange (2409.HK)

InterContinental Shipping Group Holdings Limited (hereinafter referred to as 'InterContinental Shipping') successfully listed on March 29, 2023. The company plans to issue 125 million shares at an issue price of HK$3.27 per share, with a net raise of approximately HK$348 million (assuming that the over-allotment rights are not exercised).

During the process of listing in Hong Kong this time, Frost & Sullivan mainly undertook the following tasks: helping the issuer accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the issuer's competitive advantages, assisting the issuer, investment banks, and other intermediaries in completing the writing of relevant parts of the prospectus (such as overview, competitive advantages and strategy, industry overview, business, and other important chapters), helping the issuer complete communication with the Hong Kong Stock Exchange and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and assisting the issuer in completing feedback on various industry-related issues from the Hong Kong Stock Exchange.

The company is a leading third-party ship management service provider offering comprehensive ship management solutions;

The company has established a high-quality and diversified customer base;

The company satisfies its customers by providing high-quality and reliable services, and achieves sustainable development;

The company has a high-quality, dedicated management team with profound industry insight and rich experience.

In recent years, the total capacity of the global maritime service industry has seen significant growth in all sectors, mainly due to an increase in maritime trade volume and corresponding demand for maritime transportation. The overall market size increased from 18.113 million dwt in 2016 to 21.346 million dwt in 2021, with a compound annual growth rate of 3.3% during this period. As global maritime trade activities recover from the COVID-19 pandemic and continue to grow, it is expected that the global maritime service industry market size will increase to 24.799 million dwt by 2026, with a compound annual growth rate of 3.0% from 2022 to 2026. Compared with other modes of transportation, the demand for transporting goods by water is growing due to factors such as cost-effectiveness and safe methods of transporting goods. The economic reopening after the COVID-19 outbreak has also stimulated a surge in demand for goods and raw materials.

The bulk cargo market mainly consists of bulk and less-than-containerload (LCL) cargoes. Iron ore, coal, and grains are classified as bulk cargo, accounting for a significant proportion of dry bulk trade, representing about 61.2% of the total global bulk cargo volume traded in 2021. Overall, the global bulk cargo trade volume increased from 488.81 million tons in 2016 to 536.74 million tons in 2021, with a compound annual growth rate of 1.9%. Looking ahead, given the continuous introduction of infrastructure and industrial development plans globally, consumables such as grains and agricultural products are expected to maintain a steady growth momentum. Bulk commodities related to construction and manufacturing, such as iron ore and cement, are projected to continue growing at a compound annual rate of about 4.3% and 3.8%, respectively.

In 2021, China accounted for about 43.3% of global bulk cargo trade volume. Due to the launch of large-scale construction projects in China, domestic demand for related building materials increased, driving demand for iron ore and cement over the past few years. Overall, China's total bulk cargo ship trade volume increased from 18.086 million tons in 2016 to 23.266 million tons between 2016 and 2021, with a compound annual growth rate of 5.2%. Thanks to the rapid containment of the COVID-19 pandemic, China's export and trade activities resumed their growth momentum, with trade volume increasing by 8.1% year-on-year in 2020, contributing to the strong compound average annual growth rate from 2016 to 2021. With the normalization of global economic activities, it is expected that China's bulk cargo ship trade volume will grow more moderately than during previous periods from 2016 to 2021. Looking ahead, the trade volume is expected to reach 27.739 million tons in 2026, with a compound annual growth rate of 3.6% from 2022 to 2026, due to the continuous demand for key commodities such as agricultural products, ores, and minerals.

1) Digital Transformation

As is well known, the daily operations of the maritime industry rely on paperwork, and the pace of technological transformation is relatively slow. However, the COVID-19 pandemic has forced many shipping companies to adopt technology to solve related limitations. The preference for digital transformation among stakeholders and the general public is due to its benefits for the overall development of the industry. The trend towards digitization may continue, for example, industry leaders have been using digital technology to simplify freight booking and automating manual processes with artificial intelligence to manage transportation needs.

Data analysis, including data mining, collection, and prediction, is increasingly being applied in the maritime industry. This may include data on cargo types, weight, and destinations, or data on the ship itself, such as repairs, stability, engine performance, and communications. Data analysis involves classifying and arranging numerous data sets and attempting to establish associations to draw useful conclusions. For example, data analysis can reveal historical cargo trends, marine conditions, and how ships respond to various weather changes. Using data analysis enables companies to analyze various performance parameters, which can be used for better efficiency and planning.

On the other hand, Internet of Things (IoT) allows ship operators and charterers to remotely command and/or operate ships without having to be on board. For example, individual cabins on a ship can be remotely accessed with the help of applications or remote controls provided by the crew.

Research shows that the maritime industry accounts for about 3% of global greenhouse gas emissions. As public awareness of environmental protection increases and initiatives to reduce the impact of climate change are implemented globally, the shipping industry is striving to reduce greenhouse gas emissions. For example, on January 1, 2020, the new sulfur limit for marine fuel issued by the International Maritime Organization (IMO) came into effect to improve air quality, protect the environment, and safeguard human health. This rule, known as 'IMO 2020', limits the sulfur content of marine fuel for ships operating outside designated emission control areas to between 3.5% and 0.5%m/m (mass ratio). In addition, in response to the Paris Climate Change Agreement, the 173 member states of the IMO have adopted preliminary strategies to reduce global shipping carbon emissions by at least 50% by 2050.

Over the years, the volume of maritime trade has been continuously increasing, driving the development of the maritime industry. Although the outbreak of COVID-19 initially caused supply chain disruptions in the first half of 2020, the relaxation of restrictions and lockdown measures in the second half of 2020 led to a surge in demand for finished goods, which in turn led to an increase in demand for shipping services and freight rates. Given the positive market outlook, the shipbuilding industry has seen a rebound in orders since early 2021. However, since new ship orders take about three years to deliver, the short-term rise in maritime trade demand will provide further opportunities for existing shipping service providers to profit from rising freight rates charged for transporting goods.

The bulk cargo shipping industry is closely related to global infrastructure and economic development, as most of the transported goods are raw materials and commodities such as steel, coal, cement, timber, and other building materials. With the renewal of infrastructure in developed and developing countries and the continuous growth of infrastructure construction, the demand for raw material logistics will bring growth opportunities to the bulk cargo shipping industry. For example, the US government has launched a $1.2 trillion plan to update national infrastructure. In addition, the 'Belt and Road' initiative proposed by the Chinese government has brought huge opportunities for foreign infrastructure development, stimulating growth in foreign trade, thus increasing the demand for raw material transportation and supporting the expansion of this industry.

The Chinese maritime service market is relatively concentrated in a few leading enterprises with high market awareness and brand recognition. In terms of international route capacity in 2021, the five major participants together accounted for about 51.4% of the market share. The remaining market competition is fierce, with over 20,000 market participants globally traveling to China via international routes in 2021 to transport goods. In 2021, based on the capacity of international routes involving goods shipped to and from China, the company was the fifth largest maritime carrier headquartered in China, with a capacity of about 1.26 million dwt, accounting for 0.4% of the total market share.

In 2021, the company accounted for 0.1% of the total market share of dry bulk shipping companies globally with 1.15 million dwt.

In 2021, in terms of capacity on international routes involving dry bulk cargo shipping between China, the company was also the fifth-largest dry bulk carrier by headcount based in China.

Third-party ship management services refer to the daily operation, technical management, crew management, maintenance and repair services of ships, as well as the certification and system documentation management of third-party-owned ships under maritime regulations and conventions. Shipowners with small and medium-sized fleets usually deploy shipping services through third-party ship management service providers to effectively manage costs. In recent years, the stable growth of the maritime industry has led to a demand for cost-effective, standardized ship management services. Shipowners who do not necessarily have experience in ship management will hire third-party ship management service providers.

The global market size for third-party ship management increased from $5.2 billion in 2016 to $6.4 billion in 2021, with a compound annual growth rate of 4.2%. This is due to the increasing compliance requirements and demand for high-value-added services. With the growth of maritime services, it is expected that the global market size for third-party ship management will grow at a compound annual rate of 3.8% from 2022 to 2026.

The market scale of third-party ship management services in China increased from RMB 4.3 billion in 2016 to RMB 5.9 billion in 2021, with a compound annual growth rate of 6.5%. Especially during the COVID-19 pandemic that led to supply chain disruptions, the market grew significantly in 2020 due to rising demand. With the recovery of port operations in other countries, the third-party ship management service market in China is not expected to achieve strong growth in the near future as it did after the sharp increase in demand following the containment of the COVID-19 pandemic in the second half of 2020. It is anticipated that the demand for third-party ship management services will continue to grow after the pandemic, with a compound annual growth rate of 4.5% from 2022 to 2026.

In the face of increasing compliance requirements, many shipping companies have chosen to adopt integrated fleet management systems to maintain their competitiveness in the market. To comply with increasingly stringent regulations, such as the new sulfur content limits for marine fuel implemented by the International Maritime Organization on January 1, 2020, shipowners tend to seek and listen to advice from professional third-party ship managers. This advice may involve matters such as the correct marine fuel and ship engine or related investment transition schedules, in order to maximize cost savings.

Given the continuous rise in demand for complex ship management services, the need to hire third-party ship management service providers has become widespread. Third-party ship management services essentially include crew, dry docks, provisioning organizations, compliance and maintenance. Third-party ship management service providers also offer daily operational services for ships, crew management services, maintenance services for third-party-owned ships, and shipbuilding supervision services. Traditionally, ships were managed by the shipowners themselves. Currently, almost all organizations involved in the industry are very large and own many ships, which in turn drives the demand for professional management of their businesses and fleets.

A new group of investors has emerged in the shipping market, including finance leasing companies, private equity funds, and export credit institutions. This provides a new and increasingly important source of business for third-party ship management service providers. Since these investors do not have expertise in the shipping industry, they are more likely to cooperate with third-party ship management service providers, relying on their professional knowledge and economies of scale to meet fleet management requirements. In fact, the rise of non-traditional shipowners, especially in Asia, has driven the development of third-party ship management services.

China's ship management service providers can leverage their deep market knowledge and extensive network of shipping companies in China to establish a wide range of supplier and customer bases. In terms of the number of third-party owned ships under management, the company is the largest third-party ship management service provider headquartered in China in 2021, managing 176 third-party owned ships, accounting for approximately 1.3% of the global total market share.

Frost & Sullivan has extensive research experience in the transportation industry and has assisted well-known enterprises in successfully listing on capital markets. Successful listings include: DBS World (2418.HK), Kuaigou Taxi (2246.HK), Cangang Railway (2169.HK), YGMZ.NASDAQ, Asia Express (8620.HK), InfinityL&T (1442.HK), Xiangxing International (8157.HK), CSSC Leasing (3877.HK), Chengdu High-Speed (1785.HK), Huazhi International (2258.HK), Wanlida (8482.HK), Qilu High-Speed (1576.HK), Asia Industry (1737.HK), Junghao Holdings (8035.HK).