EKH turns to Hong Kong market to load up on new funds

The Singapore-based operator of container depots is in the market for IPO cash to fund a big freight complex, but it may struggle to convince investors

Key Takeaways:

• The company is aiming to build a giant logistics hub in Singapore, with construction to start in the second half of this year
• Its cash reserves stood at just S$17.59 million in the first half of 2024

By Lee Shih Ta

Singapore’s biggest operator of container depots, EKH Ltd., has plans to build a vast logistics site in the city state to handle cargo from across Asia. But the project was delayed by the pandemic, and revenues have since been slipping, leaving limited cash on the company’s books.

An IPO in Hong Kong could offer a financial fix, after the cargo handling and container company delisted from the Singaporean market back in 2010. EKH has just resubmitted an application to list on the Hong Kong Stock Exchange after an earlier IPO filing lapsed in June last year.

The company is one of Asia’s leading providers of container depots and services,  headquartered in Singapore but with operations across China, Hong Kong, Malaysia, Thailand and Vietnam. It provides storage, logistics and handling services to cargo shipping lines and container leasing firms, as well as container inspections and transportation.

Lackluster earnings

EKH ranked as the biggest depot operator in Singapore by container throughput in 2023, with a market share of 17.9%, according to Euromonitor data cited in the prospectus. At the end of last year it was operating 20 container depots across 10 locations, with a total depot storage area of about 625,100 square meters and storage capacity of around 91,000 TEUs, an industry measure based on the size of a standard container.

However, the earnings picture could be a concern for investors, with corporate income slipping in recent years. The company logged revenues of S$176 million ($128.97 million or 939 million yuan) in 2021, falling to S$161 million in 2022 and S$156 million a year later, according to data in the IPO paperwork. That represents a compound annual growth rate of minus 5.93%. Profits over the same period came in at S$6.39 million, S$9.48 million and S$7.70 million. However, revenue for the first half of 2024 grew 6.8% to S$80.92 million from the same period a year earlier.

The business of operating container depots has held steady over that timeframe, contributing around 68% of total revenue. However, revenue from warehousing and container freight stations fell from S$20.49 million in 2021 to S$15.46 million in 2023, while turnover from sales and inspections of containers shrank from S$9.48 million to S$1.50 million over the same period.

Diminishing returns from China

A container freight station (CFS) is a warehouse where goods from various customers are grouped together or deconsolidated for transport. As the company only offers CFS services in Hong Kong and the Chinese mainland, the decline in this segment has cut the revenue input from China. In 2021, the mainland accounted for 53.2% of revenue compared to 24.1% for Singapore. However, Singapore’s share rose to 38.5% in the first half of 2024, surpassing the 37.9% from mainland China. A need to bolster its mainland and Hong Kong business might be one reason for the choice of listing venue.

The state of the company accounts could also explain why the container depot firm is keen to raise equity capital now, as Singapore pushes ahead with a strategic upgrade of its port facilities.

Singapore boasts the world’s second-biggest port facility in terms of handling capacity, dealing with more than 39 million TEU in 2023, a figure beaten only by Shanghai. However, six Chinese ports made into the global top 10 in the past five years with rising throughput year by year, while Singapore’s port eked out only small gains, leaving it at risk of being displaced by Chinese rivals.

Towards a megahub

To enhance competitiveness, Singapore’s government launched the Tuas Megaport project in 2012 that will consolidate Tanjong Pagar, Keppel, Brani and Pasir Panjang ports to create a more efficient and sustainable complex. By the time the fourth phase is completed in 2040, ithe integrated port would be the world’s biggest container terminal with a annual throughput of 65 million TEU.

In line with the government initiative, EKH drafted a plan in 2017 to build a comprehensive logistics hub called Megadepot near the Tuas Megaport. A land lease was signed in 2020 for a plot of 80,000 square meters and construction was scheduled to finish by the end of 2026.

However, the Covid pandemic got in the way of the ambitions. The bidding process for the engineering phase only wrapped up at the end of 2024 and building work will not get underway before the second half of this year. The clock is ticking, as existing leases on container depots that are due to be consolidated into the new hub will expire in 2026.

Faced with costs for the depot revamp and logistics hub, the company is short of money. It is using bank loans and internal funding to finance the new logistics center, according to the IPO filing. However, the firm was sitting on just S$17.59 million in cash and cash equivalents for the first half of 2024, far from enough to meet its development needs.

The company hopes that a Hong Kong listing will deliver a much-needed financial boost for its expansion plans. But to secure the funding it will need to convince enough investors to get on board, at a time when prospects are clouded by rising global trade tensions and geopolitical rivalries.

It remains to be seen whether the company can pull this off, with many uncertainties and a questionable earnings record likely to weigh on the minds of investors.

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