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CIMC 2022 AGM: Container demand stabilizes and rebounds, Energy new orders surge

CIMC Group (00039.SZ/2039.HK)’s 2022 annual general meeting, the first A-share class meeting in 2023 and the first H-share class meeting in 2023 were held in Shenzhen headquarters. Chairman and CEO Mai Boliang presided over the AGM, while other directors, supervisors, and senior executives of the Group participated and attended the meeting respectively.

During the meeting, it was revealed that container demand is gradually recovering in the second quarter of 2023, with freight rates and volumes stabilizing. Notably, the North American market has witnessed high profitability in road transport vehicles, while the gross profit margin of the domestic lighthouse factory business has increased. Additionally, the energy sector has experienced a surge in new orders, particularly for clean energy equipment, with the offshore engineering business boasting a full order book and rapid capacity expansion.

The management of CIMC Group engaged in face-to-face communication with shareholder representatives and media journalists, addressing various topics of market concern, including container business operations, energy industry layout, cross-ocean vehicle operations, and the development prospects of the cold chain business.

Stabilizing and Rebounding Container Demand

Revamping the Fresh Supply Chain Ecology through Cold Chain Restructuring

In the second quarter of the year, the shipping industry’s market demand is gradually recovering as freight rates and volumes exhibit signs of stabilization. CIMC’s container demand has stabilized and rebounded, with some orders already scheduled for production in the third quarter, marking a positive shift from the previous quarter.

Addressing the global trade landscape changes, Chairman Mai Boliang said during the meeting, “As the basic unit of global logistics, containers are closely related to global trade activities and are not limited to any particular shipping route. Although the current global trade landscape is facing certain challenges, the proportion of global industrial output accounted for by long-term global trade remains high and still developing. Although the growth rate may not be significant, the prospects are still promising. We believe that changes in the trade landscape will not have a disruptive impact on container demand.”

Furthermore, regarding media’s concerns about the relocation of container factories due to the global industrial chain transfer, Mai Boliang stated, “There is indeed a trend of the transfer of some light manufacturing industries to Southeast Asia, and even in the future to Africa and South America, for the joint global development. As a leading enterprise in the container industry, CIMC always keeps a close eye on this trend and is constantly conducting research. No matter how the situation changes, CIMC’s global position in the container industry will not change.”

According to BIMCO, a highly influential international shipping organization, under the basic scenario, global container shipping volume is expected to increase by 0.5%-1.5% in 2023 and by 5.5%-6.5% in 2024. Volume and growth rate recovery are anticipated in the second half of 2023m, with the total volume of major outbound and regional routes projected to be approximately 7% higher by the end of 2024 compared to 2022.

Despite the pressure the shipping market faces in the first half of 2023, CIMC Group has demonstrated a market share increase against the trend, highlighting its competitive advantages. Leveraging its strong foothold in the container manufacturing market, the Company actively explores new opportunities through its “container+” business, achieving growth in multiple areas.

For example, CIMC is actively developing new products suitable for modern agriculture and new energy vehicle scenarios, such as planting containers, integrated refrigeration and insulation equipment boxes, new energy refrigerated containers, and V-RACK frame containers, among others.

Benefiting from the growth of the electrochemical energy storage market, CIMC’s container energy storage business continued to develop rapidly in 2022, reaching new revenue highs. By focusing on integrating energy storage systems, the business has transitioned from offering 20-foot and 40-foot containers to providing fully integrated energy storage solutions to downstream customers. Notably, records of batches of multiple deliveries have already been made to satisfied customers, showcasing the business’ strong performance.

CIMC Fishery has made significant strides in promoting the transformation and upgrading of traditional aquaculture industries through innovative “container+” scenarios. The modular construction business has made significant progress in both domestic and international markets, achieving significant milestones in several major projects.

Mai Boliang emphasized the rapid growth and stability of CIMC Group’s “container+” business. This sector has contributed significantly to the container industry, effectively mitigating the cyclical fluctuations associated with traditional containers.

Mai Boliang also reiterated CIMC Group’s active promotion of the fresh supply chain ecosystem reconstruction. China’s fresh supply chain currently faces several challenges, including (1) lengthy intermediate circulation processes, where fresh products typically go through multiple layers of transportation and circulation before reaching consumers, and (2) a lack of accurate full-process cold chain transportation, resulting in a loss rate of nearly 30%, not including the degradation of product quality, which can turn a first-grade product into a fifth-grade product.

“CIMC aims to address these two pain points by reducing the intermediate circulation process and ensuring accurate full-process cold chain transportation, eliminating fresh product loss rates and extending shelf life. This is where CIMC’s advantages are at,” added Mai Boliang, optimistic about the development prospects of CIMC’s cold chain business.

North American Vehicle Business Exceeded Expectations, Highlighting the Resilience of Its Cross-border Operations.

CIMC’s vehicle business has achieved impressive results driven by domestic recovery and overseas growth. In the first quarter of 2023, the business recorded a net profit that doubled year-on-year, while the gross profit margin increased significantly by 8.2 percentage points, setting a new historical record.

Notably, the strong profitability of its North American operations played a crucial role, benefitting from favorable economic policies and the rapid growth of intermodal transportation in the region. According to market research company, ACT Research, in the first quarter of 2023, the North American market’s semi-trailer production volume has reached 101,500 units, a year-on-year increase of 14.04%, maintaining its leading position in the industry.

Entering the second quarter of this year, the North American market continues to demonstrate high demand trends, with ongoing order deliveries. In 2023, as the impact of the pandemic gradually diminishes in North America and consumer demand grows, the freight volume of the overall vehicle transportation market is expected to rise, sustaining the robust demand for semi-trailer equipment.

Besides the favorable conditions in the North American market, strong demand is also emerging from other markets. Developing countries represent the most pressing demand for global development, offering ample opportunities for high-growth industries. CIMC’s vehicle business is actively seeking market prospects in Southeast Asia, Africa, and the Middle East, facilitating the establishment of LoM manufacturing plants and constructing a sustainable and competitive overseas emerging market operation system. In the first quarter of this year, the Vanguard business seized overseas market opportunities, vigorously developed emerging markets, and achieved remarkable revenue growth of a notable 5 percentage points increase in gross profit margin.

In the domestic market, the continuous recovery of infrastructure investment, steady progress in imports and exports, favorable government policies, and smoothness of the road transportation network have set the stage for a moderate recovery in China’s heavy truck market this year. Industry forecast reports predict China’s heavy truck sales in 2023 will reach approximately 800,000 units, marking a year-on-year increase of about 20%.

Industry insiders have analyzed that this year, the recovery of China’s commercial vehicle market is highly probable, and both North America and Europe are expected to witness growth. Furthermore, exploring emerging markets, such as Southeast Asia, will contribute to CIMC’s positive vehicle sales growth.

Surging new orders for energy equipment, and the order book is full.

In the energy sector, CIMC Group focuses on major areas such as energy, chemicals, liquid food equipment, and offshore engineering while continuously increasing its investment in new energy. The Company has made comprehensive layouts in key equipment areas, such as hydrogen, offshore photovoltaic power, offshore wind power, and energy storage.

As the Chinese economy steadily recovers and international natural gas prices decline, domestic natural gas consumption is gradually improving. According to data from the National Development and Reform Commission, China’s apparent natural gas consumption from January to April this year reached 129.26 billion cubic meters, reflecting a year-on-year increase of 4.1%. Furthermore, the National Bureau of Statistics reported that China’s natural gas imports from January to May amounted to 46.291 million tons, representing a year-on-year increase of 3.3%. The sales of LNG heavy trucks have also increased significantly, with 10,804 natural gas heavy trucks sold domestically in May, showcasing a staggering year-on-year increase of 547.3% and a month-on-month increase of 35%. Cumulative sales from January to May reached 35,000 units, reflecting a year-on-year increase of 255.8%.

The recovery of demand in the natural gas industry has propelled the clean energy equipment business to new heights. CIMC Enric, as a leading player in the domestic clean energy industry, has experienced substantial growth in revenue and orders since 2023. Strong demand has been observed for low-temperature and high-pressure equipment sales, and the overseas markets continue to demonstrate robust demand for onshore clean energy equipment and engineering.

CIMC Group President Gao Xiang has mentioned that CIMC Enric has strategically positioned its business around the “manufacture, storage, transportation, and usage” of clean energy equipment, enabling a comprehensive industry chain layout. The Company focuses on researching high-pressure equipment for hydrogen storage and transportation. With the government currently promoting the use of Type IV hydrogen storage tanks, CIMC Enric has partnered with Hexagon to develop these tanks, which are expected to be launched this year, further enhancing CIMC’s core competitiveness. Last year, CIMC’s hydrogen energy business achieved sales of 440 million RMB, and high-speed growth is expected to continue this year.

In addition, the shipbuilding industry is experiencing a long-term high boom cycle due to ship replacement cycles and stricter environmental requirements. CIMC Enric’s water-based clean energy business has recently and consecutively secured multiple orders, including LNG fuel tanks worth over 1 billion RMB, 2+2 1450 TEU LNG dual-fuel container ships worth over 1 billion RMB, 2+2 LPG/ammonia transport ships worth nearly 900 million RMB, and 4 clean energy river-sea intermodal bulk cargo ships worth over 250 million RMB, benefiting from the strong industry demand.

Meanwhile, CIMC’s offshore engineering business is developing substantially, propelled by the increasing demand for traditional oil and gas FPSO equipment and the dual drive of new energy-related industries. In the first quarter of 2023, the business achieved remarkable year-on-year increases in newly signed orders and cumulative order backlog. Newly signed orders reached $1.1 billion, showcasing a year-on-year increase of 119%, while the order backlog reached $4.76 billion, a year-on-year increase of 116%. Concurrently, the offshore asset management platform business secured a new contract for a self-elevating drilling unit at the end of March, leading to a 53% year-on-year increase in the order backlog, amounting to 349 months.

Addressing concerns about the impact of recent crude oil price fluctuations on CIMC’s offshore engineering business, Mai Boliang responded that “minor oil price fluctuations are considered normal. Furthermore, in recent years, CIMC’s offshore engineering business has proactively capitalized on the historical opportunities presented by the rapid development of new energy and special-purpose ships. Investment in new production capacity and timely product delivery in emerging areas has been pivotal. Approximately 50% of the order backlog value of CIMC’s offshore engineering business originates from non-oil and gas projects. The recovery trend is relatively certain when considering the offshore engineering industry as a whole. Based on the construction nodes of the order backlog, we expect the offshore engineering industry to experience a substantial period of robust recovery over the next 3-5 years.”

Moreover, CIMC Group has actively entered overseas markets in the energy storage sector and established a strategic joint venture with POWIN Energy, a leading international energy storage integrator and manufacturer. The two entities are actively expanding the global market for fully integrated energy storage equipment through technological research and development and product innovation.

Shenzhen has proactively embraced energy storage as a “windfall” area, with the city’s policy support and planning in the field of energy storage at the forefront. In June 2022, Shenzhen issued the “Action Plan for Cultivating and Developing New Energy Industry Clusters in Shenzhen (2022-2025)”, which identifies the development of new energy storage as a critical project, emphasizing the need to strengthen the electrochemical energy storage system. Based on unwavering policy support and certain industry trends, CIMC’s energy storage business is poised to maintain sustained growth momentum.
Source: CIMC

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