As we all know, China, as an important exporter of global trade, has a huge demand for container transportation, which undoubtedly promotes the rapid development of major domestic container ports.
According to Frost & Sullivan, seven of the top 10 container ports with the highest container throughput in 2020 were located in China, with a market share of about 22.6%, the other three being Singapore, South Korea and the Netherlands. Among them, the top 10 container ports contribute more than 30% of the total global container throughput.
The huge domestic demand for container transportation has obviously created more development opportunities for related enterprises in the industrial chain. No, a logistics service provider called "Toguen Global" has also taken advantage of this development to submit an IPO to the US Securities and Exchange Commission (SEC) to apply for a listing on the NASDAQ.
According to the prospectus, Toguen Global is a logistics service provider that provides container trucking services, and its customers mainly include large freight forwarders, trading companies and construction companies. As of the end of last year, the company had a fleet of 214 trucks and 239 trailers, serving Anhui, Fujian, Jiangsu, Shandong, Zhejiang and Shanghai.
At present, the China Securities Regulatory Commission (CSRC) is issuing supplementary material requirements for Toguen Global, which involves the compliance of outbound investment and return mergers and acquisitions, new shareholders, nominee shareholding, financial data, etc.
Next, we might as well take a closer look at the company's prospectus - what kind of logistics service provider is Toguen Global, and how is the company's growth under the huge demand for container transportation?
Low profitability, a "not profitable" business?
Through its subsidiary "TKE Zhenbiao" established in 2001, TKE Global has become a logistics service provider in East China.
It is reported that the company mainly provides container freight services to customers. As at 31 December 2022, Toguen Global operated a truck fleet of 214 trucks and 239 trailers, of which 5 trucks and 4 trailers were leased under a capital (finance) lease arrangement, all owned by GONGSI1. According to the Frost &Sullivan report, in 2021, the company's self-operated vehicles ranked first in East China.
From the perspective of business coverage, Toguen Global provides a relatively wide geographical coverage, which can meet the various transportation needs of customers in East China. Specifically, the company is headquartered in Shanghai, with East China as its main market, and its logistics network covers major transportation hubs such as Shanghai, Jiangsu, Zhejiang, and Anhui.
Although Toguin's global business has matured and its coverage is relatively broad, its core financial data does not appear to be a "profitable" business.
According to the prospectus data, in 2021 and 2022, the company's revenue will be US$65.887 million and US$63.0568 million, a year-on-year decrease of 4.3%; The net profit was US$1.515 million and US$1.0869 million respectively, a year-on-year decrease of 28.26%, and on the whole, the core financial data in the past two years have shown a downward trend.
Not only that, but the company's profitability is also at a low level - in 2021 and 2022, the company's gross profit will be $1.9854 million and $1.6864 million, respectively, declining year by year. While gross profit was declining year by year, the company's gross profit margin during the period was only 3.0% and 2.7%.
(Source: Toguen Global Prospectus)
The lower level of profitability also led to a tight cash flow situation for Toguen Global. According to the prospectus data, as of December 31, 2021 and December 31, 2022, the company's ending cash and cash equivalents were US$1 million and US$1.8 million, respectively. At the same time, the company's total current assets were US$24.3086 million and US$24.7823 million, while the current liabilities were as high as US$19.1594 million and US$18.3858 million respectively, which is evident in the short-term debt repayment pressure.
In addition, the Company's cash flow is primarily dependent on customers receiving payments in a timely manner to meet the Company's payment obligations to suppliers and subcontractors. At the end of 2022 and the end of 2021, Toguen Global's accounts payable were approximately US$1277072 and US$12061672, respectively, representing approximately 66.9% and 63.0% of total current liabilities, respectively. During the same period, the company's accounts receivable turnover days were approximately 99.3 days and 87.6 days, respectively. As a result of the above, the company's day-to-day operations have to rely on internal resources, bank borrowings and loans to shareholders to maintain the company's cash flow and meet the needs of its day-to-day operations.
From the performance of the above core financial data, it can be seen that Toguen Global's listing in the United States is not for no reason, but may be driven by multiple factors such as low gross profit margin and tight cash flow.
The industry is imaginative, but there is no shortage of competitive pressure
Zhitong cross-border logistics, also known as "international logistics", refers to the service of transporting goods from the country where the goods are supplied to another country where the goods are received. Complete international logistics includes customs clearance, international logistics financing, yards, warehouse management, and other steps that require professional experience and expertise to complete. According to the mode of transportation, it includes various modes such as ship transportation, air transportation, road and rail transportation, among which this method coordinated by freight forwarders is called multimodal transportation.
In recent years, driven by the continuous growth of e-commerce demand, the border logistics industry has maintained stable growth, which also provides a broader growth space for the container business in the industrial chain.
Container trucking services refer to the use of vehicles and equipment to transport containers between ports and designated pick-up or drop-off addresses. It also serves as a connection to other road transport such as railways. Container trucking services provide chauffeured car services for large customers and LTL services for small and medium-sized customers, mainly by providing specialized vehicles and equipment on a small number of designed routes. According to Frost & Sullivan, due to the continuous development of the national economy and the continuous development of the automotive industry, the market size of China's container trucking services industry (calculated by the number of vehicles) experienced rapid growth from 2016 to 2021, with a compound annual growth rate of nearly 15%.
In the long run, considering the impact of policy, economy, society and technology on the special vehicle industry, the number of container vehicles in mainland China will show a relatively slow upward trend compared with previous years, and by 2026, the number will reach 3.7 per vehicle. The total reached 1 million yuan, with a compound annual growth rate of nearly 8%.
(Source: Toguen Global Prospectus)
In terms of revenue, the market size of China's container trucking services industry has also experienced rapid growth from 2016 to 2021, with a compound annual growth rate of 16.1%. In the coming period, compared with previous years, the special purpose vehicle industry will be in a relatively slow upward trend, and by 2026, the special purpose vehicle industry will be in a relatively slow upward trend, which is expected to reach about 423 billion yuan, with a compound annual growth rate of 8.2%.
From the perspective of industry development trends, benefiting from strong market demand, the container transportation service industry obviously also has a large space for imagination. However, it should be noted that Toguen Global also needs to face competitive pressure from "all directions".
Zhitong Financial APP understands that the container truck transportation service industry is highly competitive and fragmented. Toguen Global not only competes with many local, regional and national freight service operators in China, but also has to compete with air freight, rail, freight forwarders and other transport companies. In addition to established market players, the company also faces competition from new market entrants. Increased competition could result in loss of market share, increased difficulty launching new service offerings, reduced revenues or increased operating costs and expenses, any of which could have a material adverse effect on our business, financial condition and results of operations.
For example, many of Toguen Global's competitors regularly lower their rates to gain business, especially during periods of slowing economic growth. This may make it difficult for the company to maintain or increase shipping costs, or it may require the company to reduce shipping costs. In addition, it may limit Toguen Global's ability to maintain or expand its business.
Alternatively, the continued consolidation trend in the road or road freight industry may lead to the emergence of more large carriers with more financial resources and other competitive advantages, which may be difficult for Toguen Global to compete, and the company's competitive advantage may decline.
Based on the above, it can be seen that although the container trucking service industry has a certain degree of imagination, Toguen Global, with low profitability and tight cash flow, still needs to have strong core competitive advantages to turn the industry's imagination into substantial benefits, and I am afraid that it can attract more attention from investors.