Hong Kong IPO: Analysis and Subscription Plan for Huige Environmental Protection IPO
Company Name: ContiOcean Environment Tech Group Co., Ltd.
Place of Registration: Shanghai, China
Date of Establishment: May 31, 2017
Main Business: The company is primarily engaged in the R&D, manufacturing, and sales of marine environmental protection equipment and systems, serving shipowners, ship management companies, and shipbuilders. Its product portfolio includes marine desulfurization systems, marine energy-saving devices, marine clean energy supply systems, and maritime services.
Market Position: According to Frost & Sullivan, the company ranks third among marine desulfurization system providers in China and fourth globally.
Technological Advantages: The company boasts a strong R&D team with extensive industry experience and innovation capabilities. Its products have obtained multiple international certifications, ensuring compliance with global standards.
Production Facilities: The company has a production base in Nantong, Jiangsu Province, adopting a "production-to-order" model to ensure efficiency and cost control.
Service Network: The company provides global services, with service centers in Shanghai and Singapore, and collaborates with contractors to offer worldwide support.
Use of Proceeds
The company plans to raise approximately HKD 312.0 million (net) through a global offering, allocated as follows:
R&D: About 50.0% (HKD 156.0 million) will be used for R&D to further enhance technological and innovation capabilities.
Potential Acquisitions: About 15.0% (HKD 46.8 million) will be allocated for potential mergers and acquisitions to consolidate market position and expand business.
Leasing Production Facilities: About 15.0% (HKD 46.8 million) will be used to lease production facilities in mainland China or Southeast Asia and procure or lease manufacturing and logistics equipment.
Establishing Service Centers: About 10.0% (HKD 31.2 million) will fund the setup of four global service centers and upgrade existing ones.
Working Capital & General Corporate Purposes: About 10.0% (HKD 31.2 million) will serve as working capital and other general corporate purposes.
The company aims to solidify its market position, enhance competitiveness, and achieve sustainable growth through these investments.
IPO Details & Lottery Odds:
The global offering comprises 10 million shares, with 100 shares per lot. As of now, the oversubscription rate is 3.04x. No clawback is expected under current margin financing conditions. Groups A and B each have 5,000 lots, with an estimated 4,000–8,000 participants. The lottery success rate for one lot is around 50%, and applying for 4 lots guarantees one.
CITIC Securities historically favors equal allocation. Assuming this mechanism applies, the lottery success rate for one lot would be ~15%, and applying for 15 lots guarantees one.
Cornerstone Investor:
Harvest is the cornerstone investor, subscribing to USD 10.0 million (~HKD 77.72 million). At the lower price limit, this represents 24.43%; at the mid-point, 21.70%; and at the upper limit, 19.52%. The lock-up period is 6 months.
Sponsors:
CITIC Securities and China Galaxy International are joint sponsors, with CITIC as the stabilizing agent. CITIC-backed IPOs are known for stability. China Galaxy International, though inactive in recent years, has a strong track record. No stabilizing agent is appointed this time, maintaining the original formula.
Financial Highlights:
Revenue:2021: RMB 140 million; 2022: RMB 267 million; 2023: RMB 510 million; LTM as of June 30, 2024: RMB 627 million.
Gross Profit:2021: RMB 47.51 million; 2022: RMB 100 million; 2023: RMB 241 million; LTM as of June 30, 2024: RMB 283 million.
Net Profit:2021: RMB 12.77 million; 2022: RMB 36.78 million; 2023: RMB 120 million; LTM as of June 30, 2024: RMB 152 million.
Comprehensive Review:
In 2023, marine desulfurization systems contributed RMB 341 million (66.8%) to revenue; marine energy-saving devices: RMB 58.03 million (11.4%); marine clean energy supply systems: RMB 5.55 million (1.1%); maritime services: RMB 105 million (20.7%). Geographically, mainland China accounted for 20.6% (RMB 105 million), while overseas markets contributed 79.4% (RMB 404 million).
The company’s 2023 gross margin was 47.4%, with a net margin of 23.6%. Revenue grew 90.94% YoY in 2023 and 53.25% in H1 2024, while net profit surged 227.74% in 2023 and 65.06% in H1 2024. Despite stellar metrics, its classification as an environmental company creates dissonance. Comparable Hong Kong-listed peers trade at ~5x P/E, whereas ContiOcean’s offering P/E of 9.91–12.41x implies a 30% downside risk to align with the sector.
Traditional industries typically command lower valuations. The company aims to raise HKD 318–398 million, with cornerstone investors locking up HKD 77.72 million, leaving a float of HKD 240–320 million—a substantial size for small caps. The key attraction is CITIC Securities’ sponsorship (zero post-listing drops in 2024). However, an inexplicable sense of crisis lingers. Below is a table of CITIC’s 2024 IPOs to identify patterns:
CITIC sponsored 12 IPOs in 2024. The top performer was Jinko Electronics, also the most oversubscribed. Five highlighted IPOs employed clawback arbitrage; three cold stocks avoided clawback; the remaining four were high-quality listings with standard clawbacks. CITIC’s "invincibility" hinges on arbitrage and speculative small-cap plays. Personally, I skipped the first two offerings with 25% float. While ContiOcean checks all boxes—CITIC-backed, strong fundamentals—its traditional sector and 9.91–12.41x P/E (vs. peers’ 5x) give pause. For believers in CITIC’s track record, applying for 20+ lots is advised to secure allocation. I’m sitting this one out due to gut instinct—sometimes, it’s better to miss out than risk a crisis.
Application Plan:
I’m passing on this.
$CONTIOCEAN(02613.HK)
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