Dewei Shipping: Declining Revenue & Profits, Will Side Business in Sea Transport & Pulp Win Investors?

"Uncertainty" is likely to remain the main theme of the current development of the maritime market.

In the first half of 2024, under the influence of the Red Sea crisis, the shipping market operated at a high level and further increased. At the same time, the shipbuilding market showed a strong demand trend driven by the cyclical replacement of capacity and the continuous green transformation of the maritime industry. The price of new ships approached the historical peak, and companies generally achieved good profits.

However, despite the global maritime demand continues to grow, the relatively hot trend in the first half of the year has already cashed in most of the benefits in advance. In the context of the overall market confidence decline, the sea freight will still fall steadily in the short term in the second half of the year, but there is a possibility of rebound in November and December.

Under the melody of "uncertainty", the industry is not short of "warriors" rushing to IPO.

On September 27, Intercont(Cayman)Limited (hereinafter referred to as "Deway Shipping"), a shipping company from Hong Kong, submitted a prospectus to the U.S. Securities and Exchange Commission (SEC), planning to go public on the U.S. Nasdaq. The company first submitted a secret application to the SEC on April 24, 2024.

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Revenue and net profit have both declined, and "blood transfusion" is the top priority.

According to the understanding of Zhitong Finance APP, Deway Shipping is headquartered in Hong Kong and mainly operates global maritime services through its shipping subsidiaries.

In 2011, Deway Shipping established Chuangbao International (Hong Kong) Co., Ltd. In 2013, the company established Deway Shipping Management Co., Ltd. (HK), De Xiang Shipping Co., Ltd., and De Run Shipping Co., Ltd. (HK) respectively. By 2023, Deway Shipping established the listed entity Intercont (Cayman) Limited.

To date, Deway Shipping's global maritime business is mainly composed of two sources of income, namely, spot charter and ship management services. As of September 27, 2024, the company owns one ship and leases three ships, with a total cargo capacity of 217,191 deadweight tons.

In addition, the company plans to operate its maritime pulp business through Openwindow and establish its maritime pulp business on the basis of its long-standing global maritime business. By combining its own ships and cooperating with other shipowners to lease ships, the group is expected to launch its maritime pulp business in the first quarter of 2025.However, with the "uncertainty" melody lingering in the industry, the uncertainty of Dewei Shipping's growth is also revealed in its fundamentals.

According to the prospectus, for the six months ended December 31, 2023, the company achieved revenue of $12.37 million, a 37% decrease from $19.7 million in the same period of the previous year; net profit was $1.59 million, a decline of about 80% from $8 million in the same period of the previous year; gross profit was $3.4 million, a year-on-year decrease of 65%.

As the three core financial indicators continue to decline, Dewei Shipping is also facing a more obvious liquidity risk.

For the six months ended December 31, 2023, the company had about $4.7 million in cash, current assets of about $5.5 million, and current liabilities of about $36.5 million, resulting in a working capital deficit of about $31 million. The main reason for the working capital deficit is due to loans from related parties, and the related parties will not demand repayment within one year after the application date. In addition, the net cash provided by operating activities during the period also declined significantly by about 57% to $3.8678 million, further exacerbating the company's liquidity risk.

From the above poor financial data, it is not difficult to understand Dewei Shipping's intention to be a "warrior" and rush to the IPO.

How can small and medium-sized enterprises "break the situation" in the highly competitive shipping industry?

Looking at the market pattern and growth trend of the shipping industry, Dewei Shipping seems to be facing a lot of growth pressure.

In recent years, the total transportation capacity of the fleet in all areas of the global shipping industry has increased significantly, mainly due to the continuous increase in maritime trade volume and the corresponding demand for maritime transportation. The total market size increased from 1.9317 billion deadweight tons in 2018 to 2.198 billion deadweight tons in 2022, with a compound annual growth rate of 3.3% during the period. With the global maritime trade activities recovering from the epidemic and continuing to grow, it is expected that the market size of the shipping industry will increase to 2.5393 billion deadweight tons in 2027, with a compound annual growth rate of 2.9% from 2023 to 2027.

It can be seen that although the global shipping market demand continues to grow, the overall growth rate is relatively slow, which is not a good phenomenon for Dewei Shipping, which is ranked in the small and medium team, because when there are many "big fish", "small fish" are hard to eat.

It is reported that the traditional global shipping industry has always been a competitive industry dominated by a few large enterprises. Existing major companies include shipping companies that lease their own ships, such as CSSC (Hong Kong) Shipping Co., Ltd., COSCO Shipping Group Co., Ltd., and China Aviation International Maritime Holdings Limited; shipping companies focused on freight and transportation logistics, such as Evergreen Marine Corporation, COSCO Shipping Group, and China Merchants Group; and ship management service providers featuring technology and crew management, such as V.Group Holdings Limited.These companies traditionally compete on scale, routes, and pricing levers. Ship leasing companies vie to expand their fleet size and gain bargaining power over charter rates. Shipping companies compete for cargo capacity, port access rights, and booking shares on key trade routes. Ship management companies race to sign up more ships under their operational supervision.

In contrast, Dewei Shipping's fleet size is not large, with only one owned ship and three chartered ships, totaling 217,191 deadweight tons, which is almost a drop in the ocean compared to others.

In addition, the business of Dewei Shipping's shipping subsidiary is also susceptible to the cyclical negative impacts of the shipping industry. Historically, the financial performance of global maritime business has shown a cyclical pattern, characterized by fluctuations in profitability and asset values due to changes in the supply and demand of international maritime services. The amount of shipping capacity depends on various factors, including the number and size of ships in the global fleet, the deployment of ships, the introduction of new ships, and the retirement of old ships.

A decrease in demand and/or an increase in international maritime capacity may lead to a significant drop in freight rates, a reduction in cargo volume, or both, thereby adversely affecting the business, financial condition, and operating performance of the company's shipping subsidiary.

In response to the limitations of industry development mentioned above, Dewei Shipping seems to be pioneering an innovative business model at present.

Specifically, the company establishes an advantage based on differentiated capabilities that go beyond traditional maritime cost and capacity factors. With a future-oriented approach, the company has stood out from existing and traditional thinking participants in the maritime industry, using the cash flow generated by the current dry bulk shipping business to incubate new businesses.

In recent years, maritime industry policies and new development characteristics have been significant — the green trend has had a growing impact on the industry, global ships need low-carbon development, the European Union has begun to impose carbon taxes and promote ship renewal, and the growth rate of demand for different ship types has diversified due to industrial development and changes. Against this backdrop, Dewei Shipping has also launched a more environmentally friendly maritime pulp business.

It is reported that maritime pulping in the paper industry refers to the use of ships or tankers and other ocean-going vessels for the bio-pulping process to produce paper pulp for papermaking. In this context, this business model is often referred to as a "sea factory," where transportation and manufacturing processes are highly integrated. To make this concept more environmentally friendly, bio-pulping involves the use of biological agents, such as fungi or enzymes, to selectively degrade lignin and other components of wood or lignocellulosic materials, thereby separating the fibers used for pulp production.

In summary, it is not difficult to see that under the influence of multiple factors such as a sharp decline in core financial indicators and the lack of significant scale effects, Dewei Shipping has inevitably added the concept of "green and environmentally friendly" to the company's business map in an innovative way. Whether this can impress investors remains to be further observed.