New Stock News | Hui Ge Environmental Protection Submits Application to HKEx as a Provider of ESG Solutions for Ships.

According to the disclosure by the Hong Kong Stock Exchange on July 31, Shanghai Huige Environmental Protection Technology Group Co., Ltd. (referred to as "Huige Environmental Protection") has submitted an application for listing on the main board of the Hong Kong Stock Exchange, with CITIC SEC and China Galaxy International as its joint sponsors. The prospectus reveals that Huige Environmental Protection is a global leading provider of ship ESG solutions. According to data from Frost & Sullivan, as of June 30, 2024, the cumulative number of completed and outstanding orders for ship desulfurization systems ranks us first among non-state-owned enterprise ("private") ship desulfurization system providers in China, and tenth among all ship desulfurization system providers globally. According to Frost & Sullivan data, the global ship ESG solutions market increased from $753 million in 2017 to $3.102 billion in 2023, with a compound annual growth rate of 26.6%, and is expected to increase to $11.384 billion by 2028, with a compound annual growth rate of 29.7% from 2023 to 2028. It is reported that the revenue growth of Huige Environmental Protection during the past performance period is mainly attributed to the continuous evolution of global and national ESG regulations and initiatives since 2020, driving an increase in demand for the company's ship environmental solutions and global maritime services. These requirements and initiatives include the International Maritime Organization's introduction of regulations since early 2020 limiting the sulfur content of ship fuel oil to not more than 0.5% and the revised GHG emission reduction strategies agreed by member states of the International Maritime Organization aimed at achieving net-zero emissions by or before 2050. Specifically, the company's revenue for the years 2021, 2022, 2023, and up to April 30, 2024, were approximately RMB 141 million, RMB 267 million, RMB 510 million, and RMB 247 million respectively. During the same period, net profits were RMB 12.769 million, RMB 36.777 million, RMB 121 million, and RMB 66.522 million respectively. Since the International Maritime Organization first proposed global sulfur oxide emission restrictions in 2016, ship desulfurization solutions have consistently dominated the global ship ESG solutions market, accounting for approximately 50% of the industry by 2023. To comply with the International Maritime Organization's sulfur oxide emission restrictions, three strategies can be adopted: 1) use of low-sulfur fuel oil; 2) adoption of ship desulfurization systems; 3) installation of ship clean energy supply systems (such as FGSS and LFSS). Although transitioning to low-sulfur fuel is a direct way to achieve compliance in the short term, the use of non-standard blends in petroleum production leads to lower energy transfer efficiency and may cause relatively high levels of damage to ship engines during the sailing process. Additionally, low-sulfur fuel oils used in conjunction with ship desulfurization systems are usually more expensive than high-sulfur fuel oils. In 2023, the average price difference between high and low sulfur fuel oils globally was approximately $340 to $350 per ton, and this difference has slightly increased over the past three years. The installation time for ship desulfurization systems ranges from 6 to 15 months, and the lifespan of these systems can reach 5 to 10 years. After reaching the breakeven point, the cost advantages of adopting ship desulfurization systems become more apparent. Furthermore, since installing ship clean energy supply systems requires necessary modifications to ship power and fuel supply systems, it incurs high costs, such as converting diesel engines to dual-fuel engines and updating energy supply systems. The current cost of implementing these systems is six to eight times that of implementing ship desulfurization systems, making the cost advantages of using ship desulfurization systems more evident at present. Huige Environmental Protection mentioned in its prospectus that the company's supplier base is concentrated, and any price increases in their services or products may have a significant adverse impact on their operating performance, financial condition, and prospects. During the past performance period, the company procured most of its purchases from major suppliers. In 2021, 2022, 2023, and the four months ending on April 30, 2024, the company's purchases from the top five suppliers accounted for 70.5%, 40.9%, 34.5%, and 59.7% of the total procurement amount for the respective periods, and purchases from the largest supplier accounted for 51.0%, 13.7%, 9.7%, and 21.6% of the total procurement amount for the same periods. These purchases are mainly related to desulfurization towers, equipment under global maritime services, container ships and PCTC mooring components, as well as components and raw materials for ship desulfurization systems. Huige Environmental Protection pointed out that high dependence on major suppliers exposes the company to concentration risk. Huige Environmental Protection expects to continue purchasing raw materials, product components, and services from these suppliers. Difficulties in purchasing raw materials may affect the ability to timely complete and provide solutions to customers, leading to a loss of competitive advantage and existing customer base.