S.F. Holding Co., Ltd. (002352) Earnings Call Transcript & Summary

[Audio Gap] the participants only and shall not be publicly released. SF Holdings does not have authorized any media to retransmit the relevant content of this conference. Any unauthorized reprinting and forwarding are considered infringement and SF reserves the right to pursue legal liability. The market is risky and investment require caution. We remind all investors to make investment decisions carefully. Please note that the presentation materials are available on our IR website. I'm Parel, SF IR Manager to provide simultaneous interpretation together with Mark. Now I will translate for Mrs. Gan Ling, our Board Secretary.

Hello, everyone, and thank you for joining us today. I'm Board Secretary Gan Ling. In this earnings call, our CFO, Alex Ho, will start by introducing the earnings highlights for the year. Then our Chief Marketing Officer, Mr. Xu Bensong, will give the business segment overview followed by our Chief Operating Officer, Mr. [indiscernible], to introduce operational update. Next, Alex will go through the financial overview and ESG session. Finally, there will be a Q&A session on the Chinese channel. [Operator Instructions]. Now I'll hand over to Alex.

Good evening. Before we begin the formal earnings presentation I would like to express my gratitude to all of you for your long-term support. It is because of you that we were able to complete the listing on the Hong Kong stock market in last November, becoming the first A Class H share listed company in the express logistics industry. Tonight, we can see that a wider group of investors have joined the earnings call. Thank you all again. Throughout 2024, China's economy advanced steadily despite complex and changing global landscape. China's logistics industry driven by political headwinds, technological innovation and market demand continued to grow rapidly with the unique business model and leading integrated logistics service capabilities. We continue to deliver strong results with lean management and quality growth with scale economy. In 2024, we delivered the parcel volume of RMB 13.3 billion, up 11.3% year-on-year or 15.3% year-on-year, excluding Fengwang. The revenue was RMB 284.4 billion, up 10.1% year-on-year. Revenue from international business outgrew domestic business. Express and logistics revenue was RMB 205.8 billion up 7.7% year-on-year. Supply chain and international revenue reached RMB 70.5 billion, up 17.5% year-on-year, demonstrating our second growth trajectory. On top of solid business growth, we continuously optimize the cost structure and improve the management efficiency. We achieved EBITDA of RMB 32.7 billion, up by 11% year-on-year with EBITDA margin of 11.5%. Profit attributable to owners of the company was at a historical high at RMB 10.2 billion, up by 23.5% year-on-year, implying a net margin of 3.6%, up by 40 bps year-on-year. ROE was 11.2%, up by 2 percentage points year-on-year. In addition, with abundant cash flow, we emphasize on cash on shareholder returns. From 2024 until the end of this February, including the proposed year-end dividend of 2024, we have invested a total of RMB 10.66 billion in dividends and share repurchase. In the future, we will continue to improve shareholder returns through multiple measures. Looking back on 2024, the key strategy for the year can be summarized as unite for shared goals, pioneer with steadfast drive. On one hand, we bolstered organizational vitality by upgrading the incentive systems. For example, we provide more business authorizations to frontline employees. We further activate the role of headquarters to support business regions motivating all staff with aligned interest to stimulate entrepreneurship across the company. On the other hand, we serve the increasingly diversified customer demands. We entrenched the strategy of accelerating the penetration in various industries, expanding the supply chain solution in multiple industries to increase our penetration rate. Along with the rising trend of overseas expansion by Chinese enterprise in products, capacity and brands. We deepened the One in Asia strategy, strengthened our capability to provide customized international supply chain solutions. In addition, we continue to execute structural cost reduction with multi-network integration entering a new normal and operational transformation unleashing benefits ahead of schedule. So that was a brief earnings summary. Now I will hand over to our Chief Marketing Officer, Mr. Xu Bensong, to introduce the business segment performance.

Good evening, everyone. Now let me introduce the segment revenue growth. First, as in the pie chart, we have registered quality growth underpinned by both global and domestic drivers. China business continues to consolidate and international business has emerged as our second growth engine. Now let's take a detailed outlook of each segment. In 2024, the revenue of time-definite express business grew by 5.8%, outpacing China's GDP growth. On one hand, we've continued to penetrate into diverse scenarios in consumer and industrial segments. In 2024, the freight segment express parcel volume increased by 12% year-on-year. The category has diversified away from commercial documents to consumer and industrial parcels with consumer parcels accounting for more than 60% of the volume. We have also precisely identified the pain points in scenarios like entertainment, tourism, skiing, traditional Chinese medicine and supplements and serve the demand with our differentiated capabilities. On the other hand, with high-quality services, we also achieved rapid growth of return parcels in the context of fierce competition among e-commerce platforms. In 2024, our revenue from Economy Express, excluding Fengwang, increased by 11.8% driven by differentiated services and smart utilization of marginal resources. We insisted on the differentiated strategy on the e-commerce sectors with parcel volume Economy Express excluding Fengwang, increased by 18% year-on-year in 2024, ahead of leading Tongda player. We've deepened our partnership with the platforms. For example, we provided integrated warehouse and distribution solutions for multiple online supermarket and partnered with major e-commerce platforms to launch the pilot service of selected career for customers at a surcharge. In addition, we have utilized the marginal capacity by launching promotions for selected routes. We use big data to recognize idle capacity and launch periodic promotion to certain routes. We also use smart pricing for lightweight yet high-volume products such as smartphone case to drive revenue growth. In 2024, freight revenue increased by 13.8% year-on-year, with cost per kilogram reduced and profitability significantly enhanced. The structural cost saving initiatives enabled us to offer more competitive prices and rapidly expand into markets, such as industrial large items to enlarge the shipment volume. As a result, we achieved better scale economy and the flywheel of volume base profit growth has emerged. Specifically, we achieved a rapid freight volume growth of over 20% in 2024, leading the industry in terms of scale. Specifically for industrial production scenarios we have developed a less-than-truck load network, covering more than 20,000 industrial zones. As a result, the shipment volume of items above 100 kilograms drove by over 30% year-on-year. Thanks to operational transformation, our freight sorting and courier efficiency both improved by 9% year-on-year. Intercity segment recorded a strong performance in 2024 with revenue growth of 22% and net profit doubling since SF Intercity is an independently listed company, please refer to the company's disclosure for more details. Finally, the Supply Chain and International segment revenue grew by 17.5% year-on-year. As a leading integrated logistics service provider will provide end-to-end and customized services including transportation, warehousing, custom clearance and technology support to serve customers across various industries. In 2024, we achieved breakthroughs in multiple countries and sectors and won the bids for over 100 overseas supply chain projects. In terms of cross-border consumption, we launched the next-day delivery service from China to Southeast Asia and actively expand the fresh food inbound business from Southeast Asia, Europe and the U.S. In 2024, the International Express delivery revenue increased by more than 20% year-on-year. As mentioned, we have made a lot of breakthroughs in the past year empowering our customers in various industries such as coffee and tea, Trendy-toy, auto, industrial, et cetera. For example, in the Trendy-toy industry, we provide International Express integrated warehousing and other delivery service to a leading brand, facilitating its expansion in Southeast Asia and delivery to Europe and the U.S. We provided end-to-end equipment export solution to a leading manufacturer of power battery batch materials and facilitate cross-border delivery of consumer electronic raw materials for many well-known ODM customers. Next, please welcome our Chief Operating Officer [indiscernible] to introduce SF's operation update.

Good evening. Let me introduce our cost and operating update. In 2024, SF has adhered to lean management with structural cost reduction, deepening the operational transformation and network integration. Since the cost structure of KLN also known as Kerry Logistics is significantly different from that of SF Express. Here, we show the cost structure, excluding KLN. Labor costs as a percentage of revenue increased 0.8 percentage points year-on-year. Courier staff is our core competitiveness, and we are committed to enhance their compensation and satisfaction to incentivize revenue generation. We also improved their efficiency through operational transformation and automation equipment. Transportation cost as a percentage of revenue decreased 0.8 percentage points year-on-year. This is achieved by simplifying the network, optimizing the routes as well as managing the procurement price. Other operating costs as a percentage of revenue decreased 1.2 percentage point year-on-year as we continue to consolidate the sourcing centers enjoy better scale economy. Regarding Ezhou Hub, Asia's largest air cargo hub. We had opened 55 domestic routes and 15 international routes by the end of 2024 and operated more than 27,000 domestic and international flights throughout the year. In estimate, the Civil Aviation Administration approved the change of the airport's name to Ezhou Huahu International Airport. The airport with this new business card has achieved an annual cargo throughput of more than 1 million tons with the growth rate ranking the first place nationwide. In addition to the volume breakthroughs, we are also working with the government to promote industrial clusters development in the area and have introduced investment projects worth billions of renminbi. Multi network integration and operational transformation has been our focus on cost control. On the left-hand side, it shows multi-network integration has been generating continuous cost saving over the past 4 years. In 2024, the relevant cost reduction exceeds RMB 1.3 billion, growing by 17% year-on-year. As we continue to stimulate organization vitality, frontline BUs will independently navigate the potential areas of integration as a normalized cost saving measure. On the right-hand side, it shows the operating transformation. For line-haul transportation, parcels are sorted and loaded onto cage trolley at sorting clusters for direct transportation to the service area of couriers, skipping the handling and sorting process at service outlets. In the fourth quarter of 2024, the transformed areas achieved a net cost reduction per parcel. For line-haul, we built the industry's first unmanned sorting center designed for cage trolleys. We developed unmanned forklifts in some sorting centers realizing the light of operation model, the annualized cost reduction for the sorting center exceeded RMB 16 million. Besides, we have over 800 unmanned vehicles in use covering various scenarios, such as short-haul shuttle and delivery industrial parks and campuses. We continue to lead the industry in innovation and we are passionate in conducting more beneficial explorations for the industry. Our business lies on efficient operating infrastructure. We continue to invest at due course to build long-term competitiveness and improve service quality and cost efficiency through lean management. We have invested to upgrade our service quality. For example, we enhanced the end-to-end service for high-value parcels using separated sorting process for commercial documents and designated dispatching for certain e-commerce platforms. We expand the regional coverage and increase the density of service outlets. We spent over RMB 60 million to guarantee high-value parcel delivery and over RMB 860 million in automation equipment over the past year. Based on the infrastructures, we improved the cost efficiency through lean management. It is mainly reflected in 3 aspects: firstly, reduce the number of transit with fewer but larger sorting centers, we are able to achieve faster transit by strengthening the routes. In 2024, we added nearly 440 direct lines for intercity transportation. Secondly, optimize the resource structure by increasing the proportion of transportation resource with stable pricing and increased the portion of large capacity vehicles. Thirdly, lean operation across the full process, for example, renovating the sorting center with second floor for warehousing and the first floor for sorting and various measures to incentivize couriers to take the sales role. Technology innovation also empowers our daily operation. For example, we use intelligent decision-making to push digital intelligence transformation. We also applied unmanned technologies in the early stage to help achieve a leap in operational efficiency. We will continue to invest in service improvements because only in this case, is cost saving meaningful. Costs are shipped by design and the design lies in the operational transformation and application of new technologies. Now back to CFO Alex Ho to present our financial results.

Thank you. We've already discussed the financial highlights. Now let's start from the gross profit on the next page. In 2024, the company reported gross profit of RMB 39.6 billion up 19.5% year-on-year. With a margin of 13.9% and an increase of 1.1 percentage point year-on-year. Gross profit in the fourth quarter was the highest of the year at RMB 10.7 billion with a margin of 13.9%. Thanks to the lean operation, our management expense, sales expense and financial expense ratio decreased by 37 and 7 bps respectively year-on-year. In terms of cash flow, our operating cash flow reached RMB 32.2 billion, up by 21% year-on-year maintaining a strong cash flow position. Since CapEx peaked in 2021 and as we continue to focus on the ROI, the CapEx has declined year-over-year. In 2024, CapEx on assets was RMB 9.9 billion, down by 27% year-on-year. CapEx accounted for 3.5% of revenue, down by 1.7 percentage points year-on-year. We expect the CapEx to remain stable in 2025 with a decrease as percentage of revenue. Thanks to abundant OCF and prudent CapEx, our free cash flow increased significantly by 70% to RMB 22.3 billion, starting with solid foundation for shareholder returns. In terms of capital structure in 2024 with a well-planned financial strategy, we repaid a part of the long-term and short-term debts further reducing our debt-to-asset ratio to 52.1%, maintaining a healthy level. We announced the shareholder return plan for the next 5 years from 2024 to 2028, in March last year in which we stated that the dividend payout ratio will be steadily increased from 35% in 2023. In 2024, we increased the dividend payout ratio to 40%, distributing interim and final dividend of RMB 4.1 billion in total, marking an year-on-year increase of 42%. In addition, we distributed special onetime dividend of RMB 4.9 billion, to shareholders before it's share listing, elevating the annual payout ratio to 87% year-on-year. On top of that, we repurchased shares in due course to boost market confidence. We repurchased shares worth of RMB 4.76 billion from 2022 until the end of February this year. Most of the shares repurchased between 2022 and April 2024 were canceled with the cancellation rate of 1.62%. The second stage of our 2024 repurchase program is still in progress. The purpose of which is also to be canceled with the expected consolidation rate of at least 0.42%. With the above mentioned dividends and repurchases from January 2024 until end of February this year, we invested a cumulative RMB 10.66 billion in shareholder return. In the future, we will normalize interim and final dividends payout and track the stock performance to repurchase in due course. While pursuing high-quality business development, we emphasize on green development and committed to environmental protection, steadily advancing towards our carbon goals. In 2024, we achieved a 9.3% improvement in the carbon efficiency year-on-year by promoting low carbon transportation, building green industrial parks and developing sustainable packaging. The carbon footprint per parcel also decreased by 12% year-on-year, marking a significant progress towards our carbon goals for 2030. With relentless commitment to environmental protection, creating a caring workforce for employees and charitable giving, SF's ESG practices are widely recognized by domestic and international rating agencies and media. It was among the leading logistics service provider in China and the world in MSCI, Sustainalytics and CDP ratings. That brings us to the end of the presentation. Now let's hand over back to our Board Secretary, Mrs. Gan Ling.

[Operator Instructions]

Hi. My name is QiBin Feng from CICC. First of all, we would like to congratulate companies for achieving remarkable results for 2024 full year. We've seen that this company has achieved a remarkable growth in international business in 2024. And what is the -- our question is, what is the management outlook for time-definite and economic stress in '25? We've also seen increasing competition in the express delivery industry. What is the company's strategy specifically regarding ASP?

I'll translate for our CMO, Mr. Bensong Xu.

In terms of business outlook in 2025, we will take a customer-centric and market-oriented approach and develop tailored strategies for each segment. Let's talk about 2 different segments. For premium time-definite product, we will further strengthen our brand and enhance exceptional service capabilities to enhance our market reputation. For ground time tailored product, we're seeking to expand incremental value and increase our market share. We hope to achieve revenue growth of high single-digit, outpacing GDP. For economy segment, we aim to maintain above industry volume growth by expanding -- further expanding our scale to utilize idle capacity of our network. We are looking to have a growth drivers for both of our premium time-definite product and our economy. For premium time-definite express, we strive for developing lighthouse products. First, we look for service upgrade. We aim to provide services to cover customers' full cycle demand. Second, we are focusing on precision marketing by leveraging our big data models to target user precisely and provide shipping service upgrade. For capability improvement, we will enhance our same-day delivery network and extend our product time for picking up intra-city parcels, et cetera. For more dedicated services for specific logistics scenarios, namely air cargo delivery will provide more specialized logistics solutions. We're also -- lastly, we will also leverage our high-density network and superior pickup timeliness to continue to provide high-quality and stable parcel -- return parcel services for e-commerce platform. For Economy Express, we will scale up our business volume. We will promote structural cost reduction for e-commerce products and realize breakthroughs through better operating processes. And the cost savings could be used to benefit customers and bring in more incremental volume. We will also continuously monitor and make full use of idle capacity, expanding scale of economy parcels and e-commerce parcels and engage in this market competition actively. We also solidify our focus on heavy items with weights ranging from 3 to 20 kilograms covering scenarios, including household consumer goals, et cetera. We aim to achieve better economies of scale. And in terms of competitive strategies, we look for better competition in terms of value propositions rather than purely pricing. We've started with time-definite express for now it's been more than 30 years, providing highly differentiated and high-quality product. A lot of our rivals try to tap on the time-definite market and they could hardly affect our very top leading industry position. We believe that the real competition is not on price, but creating real value for the customers. One example is that our time-definite express market share are 3x that of the first run up that has proven that our leading position and our -- that we are focusing on the right strategy of competing with high-quality service and leading and consolidating our industry leadership require better operational efficiency.

Hi, everyone. My name is [indiscernible] from JPMorgan. My question is what is the plan of operational transformation this year and what exactly are the upcoming cost reduction initiatives and how does the recent decline in oil price impact SF's cost savings initiatives?

I'll translate for our COO, Mr. [indiscernible].

All of our transformation is to -- for the ultimate purpose of better fulfillment of our customers' demand and equip SF with better competitiveness in the face of competition from the industry. Our operational philosophy is to persist on long-term cost reduction and long-term value creation by strengthening our cost design and planning of its capability where extensive -- we're going to strive for better operational model breakthroughs and technology innovation to streamline our operational processes. For instance, and for our sorting transit center, our business volume has increased 11% in terms of business volume, while we have -- with lower deployment of operational resources with a 20% reduction in development management costs. Our cost reduction will continue to follow our long standing philosophy, as mentioned. Well, regarding the oil price, undeniably, the decline in oil price did have some positive impact on our operational costs. But we want to emphasize that our -- the effectiveness of cost reduction initiatives never solely relied on external risk. The price volatility of external resources, that is more on our precise matching of freight capacity and parcels and more optimized route planning, scientific fleet choosing and better scheduling of fleet resources. Overall, we firmly believe the core of cost management lies in design and the productivity is generated from execution.

My name is [indiscernible] from [indiscernible] Securities. I have 2 questions for the management team. So what is the management team's view on the impact of recent policies, particularly on the product subsidy in 3C products and also the impact of tariffs on our international business?

So for products subsidy, we want to emphasize that the product subsidy program cover not only mobile phones, but also home appliances, including pads, laptops, television and also home compliant app wearable. So in terms of volume, we have a substantial market share in both mainstream e-commerce platforms and also some of the foot merchants private domain platforms. For instance, on the first [ data ] launch of net product subsidy on 3C products, we fulfilled the delivery of the very first order on Tmall. Another example is since the launch of the product subsidy on new 3C categories in January, our business volume has steady increase given almost all platforms of the asset service except for one which I will prioritize its own self-build logistics. Geographically, we registered faster growth in Southern China relative to the rest. And besides our product subsidy also benefit our value-added services such as follow-on testing, verification and activation of 3C products upon delivery and is further boosting our revenue growth. So for tariffs, on one hand, cross-border e-commerce logistics account with very little proportion of SF business. Since the kickoff of segmented tendering by some platforms last year, we have intentionally cut down on the size of this business and only retain non-e-commerce part with very low revenue contribution. So tariffs would have relatively limited impact on our business. And on the other hand, the new tariffs have accelerated the shift of logistic models for cross-border e-commerce platform from direct air shipment to semi and trusted model of ocean freight plus overseas warehouses. So we're better positioned to provide given the strong presence of KLN in ocean freight and overseas warehouse.

Hello. I'm Aaron Luo from UBS. My question is, what is the company's plan for CapEx this year? With the strong improvement in the cash flow, is there still room for an increase in the dividend payout ratio? What is the company's guidance for 2025?

I will translate for CFO, Alex Ho.

For your first question on CapEx, in 2024, our CapEx on asset amounted to RMB 9.9 billion, representing a 27% decrease year-on-year. And the percentages of revenue declined by 1.7 percentage points. In 2025, we expect the asset related CapEx remained stable with a slight decrease as a percentage of revenue. Our CapEx spending slowed down in the second half of 2024 because some investments that were not made behind in the fourth quarter will be invested this year. As [ Sohai ] has introduced, we will further optimize the resource structure, increased the proportion of self-operated vehicles by replacing some vehicles. Meanwhile, we will introduce additional all cargo aircraft to strengthen the international network. So we plan to invest in the following aspects over 30% in transportation capacity, including in aircraft and trucks. Around 20% will be invested in sorting centers. Around 10% to 12% will be in industrial park construction, and another 10% to 12% in technologies and KLN. The remainder is routine assets and others. The company's CapEx schedule will be updated according to business cases to ensure a favorable ROI. So for your second question on dividend ratio, so last year, we issued interim dividend, and this will become the norm going forward. We also raised the payout ratio from 35% in 2023 to 40% year-on-year. So for 2025, we will adhere to sustainable development with steady revenue growth and profitable improvement. So there is still ample room for us to further improve the efficiency. We will carryout technological innovation, adhere to lean operation and normalize the network integration and the operational transformation. We aim to build a streamlined and efficient network to drive structural cost reduction. On the premise of ensuring service quality, we will optimize costs through a scale economy and we'll release part of the incremental cost savings back to our customers and continuously increase our market share in various industries.

My name is [indiscernible] from Guosen Securities. My question is more focusing on company's freight business. What is the expected growth trend for freight business this year? And what is management's overall outlook on the industry and key growth drivers for this segment?

I will translate for our COO, Mr. [indiscernible].

Now I would like to recap on the industry landscape. The growth scale is steady. But at the same time, we've seen increasing consolidation towards the nationwide leading players. According to some industry associations statistic, nationwide freight players business volume has registered year-on-year growth of around 10%. And for SF, our business have a shipment of over 24 million tons with 22% year-on-year growth. And our market share in the freight business has continued to lead the industry. Well, if we look at the manufacturing sector, we've seen the downtime coverage of the channel and the penetration of e-commerce, which has led to order size being dissected into smaller in scale but more frequent in -- more and more number of deliveries. Some of the destinated players focusing on destinated line, they have lacking insufficient resource deployment, and they have lagged behind in channels of service capability. That's why the players, the growth of destinated route players have registered negative growth. In terms of top layer strategic design, we have kept the parallel growth of both direct operations and franchising model. For directly operated network, we are accelerating product upgrade to increase, to deepen our market reach. But for franchising network, we are expanding the product bandwidth to do both -- to provide service across different scale. We believe that our service capability and is the most and the driver for our scale -- growth and scale. And you must have seen that SF -- we have launched comprehensive upgrade of our product providing the best quality and timeliness in the industry. On one hand, we are introducing multilayer expanding our product metrics for our freight and products. And on the other hand, we are increasing our geographical reach as well to serve our customers who are undergoing industrial transformation and upgrade. In terms of our key strategic footprint, we've seen that large-sized LTL market has so much trend of redistribution and accelerating consolidation. That's why in the 20th of March, [indiscernible] has announced equity investment in the #1 player, the [indiscernible] logistics to accelerate our focuses in the LTL -- large-scale LTL segment to continuously optimize our cost in the Economy Express market. The combination of [indiscernible] will continue to create better customer value and to lead the industry upgrade.

My name is [indiscernible]. My question is that after the acquisition of KLN in 2021 and Hong Kong IPO, what is the company's outlook for the international business?

I will translate for CFO, Alex.

In 2024, our international business outgrew almost -- growth almost doubled the domestic revenue growth. We foresee our structural and long-lasting growth of our international business. International business is our second growth driver. After the acquisition of KLN in 2021, we've been continuously collaborating with KLN from the previous sharing resource advantages to jointly using resource advantages to better serve customers leveraging KLN's extensive network. We have accelerated the implementation of our globalization strategy. We will accelerate the integration of resource and strengthen our core capabilities. On the one hand, we will integrate our end-to-end capabilities including air cargo -- air cargo aircraft and ocean freight resources of key destinations. 2B and 2C warehousing network and combination of both self-owned and partnered overseas last-mile services. We also collaborated with KLN and [ ESC ] and Industry Solution Center to leverage their understanding of the customer needs across the industries to improve the international supply chain solution. So we will strengthen our international product portfolio by, firstly, achieving the leading position in international express delivery. With the One in Asia strategy, we will provide port to port next day delivery from China to Singapore, Malaysia, Thailand and Vietnam and to upgrade to 2-day delivery for core areas in Southeast Asia. Secondly, we will penetrate the cross-border supply chain market globally. So we aim to expand the scale of overseas warehouse in Japan, South Korea, Australia, New Zealand and multiple European countries from a line-haul resource pool with self-owned and external resources, we want to break into more using scenarios. Thirdly, wider coverage of cross-border e-commerce logistics by reducing the end-to-end cost. We not only served e-commerce platforms but also serves independent online sellers and SME clients. This will help us to move out the cost curve especially during the slack and peak season of the e-commerce promotions. In summary, at this critical point for Chinese enterprises to expand overseas, we will accelerate the integration of resources to build a stronger international product portfolio, specifically in international express delivery and supply chain. We'll endeavor to become the preferred logistics partner for Chinese enterprises. We also noticed the volatility of the international trade environment and expect that the fluctuations in the supply chain will continue in this year. In the aspects of international freight forwarding as the largest comprehensive logistics service provider in Asia and the fourth largest in the world, we will leverage KLN's unique advantage in air and ocean freight and its strong market coverage in Asia to diverse our service portfolios. We will capture the opportunities brought by the reshapement of the global supply chain.

We will move on to the last questions for today.

My name is [indiscernible] Zheshang Securities. You mentioned that digitalization and technology-driven operational efficiency upgrade. We will also take this chance to ask about how does different new technologies, including self-driving logistic vehicles, DeepSeek LLM and other new tech help improve the company's operating efficiency and even potentially increase the group's revenue?

To start with, I want to emphasize that it is very committed to be well regarded globally leading digital logistics solutions provider. We're very committed -- also very committed to continuously leading industry in terms of innovation and more conductive exploration in terms of technology. This kind of acceleration spans across product innovation, model innovation, management innovation, also the application and deployment of cutting-edge technology. So in terms of self-driving vehicles, it's very mature -- we have deployed that in our different logistics scenarios, including collection and transit. We've already seen increasing efficiency and also cost reduction impact. In 2025, our capital deployment in this area will be 10x higher than ever following the opening up of the relevant policy with the SF in the future will have daily more than 110,000 rounds of cars in our different lanes to realize and to maximize efficiency. In terms of large language model, we will continue -- our continuous deployment of our self proprietary [indiscernible] large language model and the leveraging of DeepSeek and other very renowned [ RL ] and we've applied these technologies in our different logistics scenarios. And client-facing ads, we've already make things easier for clients by allowing them to send parcel request by simply typing of sentence or taking a photo. In terms of operations, we leveraged LLM to answer carriers to answer questions, identify and diagnose abnormal parcels holistically and also alert about potential missorted parcels. And in decision-making as we've; leveraged intelligence algorithm and the application of such, we've utilized our smart decision-making technology in the site planning, flight road network optimization, scheduling, et cetera. And in conclusion, we will continue to push for accelerated technology upgrade. So this was up on today's results presentation section. For further questions, please reach out to our IR section of our official website. We welcome for any further interactions with me and the IR team. Thank you, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]