Sinotrans Limited (601598.SS) Earnings Call Transcript & Summary

Distinguished investors and analysts, dear friends, good afternoon. I'm the MC today [indiscernible]. Welcome all of you to Sinotrans 2022 Annual Results Announcement. Thank you for your consistent support and attention to this company. I hereby announce the start of this results announcement. First, let me introduce the representatives of management of Sinotrans. They are: Executive Director and President, Mr. Song Rong; Chief Financial Officer, Mr. Wang Jiuyun; and Vice President, Board Secretary, Mr. Li Shichu. Now, President, Mr. Song Rong will brief you on Sinotrans 2022 annual results and the company's operating performance. Mr. Song Rong, please.

Distinguished on-site and online investors, analysts and Independent Directors of the company, ladies and gentlemen, good afternoon. As far as I remember, the last Sinotrans results announcement held in Hong Kong was about 3.5 years ago, and I'm very pleased to see many old friends and some new faces. On behalf of the management, I'd like to extend you a very warm welcome. Mr. Feng Boming, the Chairman of the Board, was scheduled to be here personally and he very much looked forward to it, but he had schedule conflict that was unexpected. He was very regretful, and he wanted me to expand an apologies to you. The company has released the 2022 performance announcement after the market closed yesterday. Today, I will focus on some key items so as to leave you more time for question and answer. In 2022, the international situation was complicated and severe trade momentum was weakened. The security and stability of the global industrial chain was [ pretty test ] and there were many economic uncertainties. They've been rising from the perspective of sea freight. In the first half, it was running at a historically high, but ever since July last year, it dropped notably. International freight, air freight rates. Entries started dropping in February and fluctuated for most of the last year. At present the sea and air freight indices have been very close to the level of the same period in 2019. And according to current forecast, in 2023 and 2024, the global container shipping capacity will rise by 7% annually. In air transport, you may be aware that the recovery of passenger aircraft [ belly ] holds. The supply of capacity will continue to increase. At the same time, the external demand has been falling. We expect the export rate, freight rates will continue to be in pressure in 2023. In 2022, especially the second half of the year, for those in the logistics industry of China, the challenges were very formidable, but Sinotrans turned the market stock into Sinotrans growth and stabilized revenue scale of RMB 100 billion. And the net profit increased by nearly 10% year-on-year. The net profit surpassed RMB 4 billion for the first time. Especially thanks to the contract logistics business, the profits of this segment topped all other segments and has become a key growth for the company in face of market challenges. The share of air freight business has increased and the quality of ocean freight business has steadily improved. The company's overall business structure has become more balanced and has been more resilient in the face of risks, whether in terms of revenue scale, profit scale, business structure or return on assets or liquidity. The company showed a very steady and positive momentum in 2022. In 2022, we focused on customer needs using technology to drive service and model innovation and created industry-leading solutions. Last year, the company comprehensively expanded the cooperation with strategic accounts and core direct customers. And the revenue from the latter was nearly RMB 15 million, up 10% year-on-year. And we focused on the differentiated needs and pain points of customers. We promoted the 3PL plus 4PL business model, extended the service chain and integrated into the customers' industrial chain, thereby creating an industry-leading solution. In the automobile industry, we targeted the pain points of inbound logistics and created a milkrun plus pre-production warehouse model to help our customers reduce their supply chain cost. In the medical and health industry -- now, we know this industry is a massive one. We targeted the logistics needs of cross-border transportation of high-precision medical equipment. We created a proprietary capability, plus a full-process controllable solution to achieve a breakthrough in cross-border business of medical equipment in the FMCG and retail industries, traditionally, our advantages. And we also provided an omni-channel solution based on technology plus BC OneWarehouse. In the electronics and high-tech industries were -- provided customers with a special improvement solution in the process of automated construction and operation and realized closed-loop management from planning to implementation. In 2022, we focused on building a resilient supply chain and made key breakthroughs in the construction of product channels. In sea freight, we continue to build the Southeast Asian transport channels and have started operating a number of container transport channels. We also created a whole supply chain products covering Japan and South Korea and improved the scale and intensification of Yangtze river feeder transport. In air freight, on the basis of stabilizing the European American routes, we expanded in key regions such as Latin America. Sinotrans operated 18 charter flights throughout the year and we operated 8 routes of them stably, achieving a controllable capacity of 228,000 [ tons ]. We continue to develop cross-border e-commerce many charters, FBA [ headhaul ] and overseas warehouses, among other standardized and whole chain products. When it comes to land transportation, mainly rail transportation, the company actively delivered high-quality China-Europe Railway Express, CRE services, dispatching close to 1 million TEUs on international trains and the CRE itself alone shipped 281,500 TEUs and lifting our market share to 17.6%. In terms of trucking, we continued to optimize and promote the SDCC system and the online capacity has reached 100,000 units. Through consolidated cargo sources, integrated capacity, unified operation and unified scheduling, we delivered 22 advantageous routes. In 2022, we focused on a digital transformation, DT and emission peaking and carbon neutrality, EPCN. 1 major project was in -- empowering innovation model featuring intelligent inventory equipment, optimized algorithms for transport scheduling, and intelligent customs sharing the document service. Together, they form the Series Smart and Series Digital products. We leveraged the scenario plus technology model to combine technology with logistics solutions, accelerating the application of smart solutions in niche markets. We created a customer plus technology model and established a new contract performance and delivery centre with key customers. With consistent investment in frontier technologies, a number of breakthroughs were achieved, especially in the area of automated driving routes. We have promoted and operated L4 on highly routes. The accumulative -- the mileage had reached 300,000 kilometers. In 2022, Sinotrans published its EPCN strategic plan and white paper on Green Logistics, actively participating in formulating industry standards related to Green Logistics. Key projects include application of clean energy, hydrogen-powered heavy trucks and carbon footprint calculators, among other pilot projects. They were about promoting the integration of carbon reduction technologies with our businesses. Now, let's look at operating performance of specific segments, first logistics revenue. The revenue came in at RMB 27.5 billion with a profit of [ RMB 20 million ]. Contract logistics among at -- performed exceptionally with a revenue of over RMB 20 billion, up 12% year-on-year and a profit of RMB 730 million, up 14%. It has become a key growth driver. In 2022, Project Logistics benefited from more favorable market conditions. It has returned to growth, with its revenue rising 7% to RMB 4 billion and profit up 45% to just under RMB 100 million. And we believe in 2023, the Logistics segment will be Sinotrans' biggest growth engine. Now, let's take a look at the forwarding and related business. This segment forms the company's cornerstone business. In 2022 we recorded a revenue here of nearly RMB 70 billion and a profit of RMB 2 billion. Investors are all well aware that our sea freight forwarding business was affected, and is usually affected by freight rates. The sharp year-on-year drop in the second half of 2022 significantly pressured the company sea freight forwarding business revenue. At the same time, thanks to the company's proactive optimization of its customer mix and expansion of the service chain, the annual segment profit still exceeded RMB 700 million, a slight drop of only 2%. The annual revenue of air freight forwarding was largely flat year-on-year at RMB 8 billion, even though the industry level was down. This profit was affected by the diversion of routes, increase in fuel costs and the second half decline in air freight rates. It increased by 27% year-on-year to a profit of RMB 340 million. When it comes to e-commerce, revenue and profit declined year-on-year last year, mainly because cross-border e-commerce logistics, the primary contributor, was also [ buffeted ] by the air freight market downturn, and logistics equipment sharing and logistics e-commerce platforms, both saw their revenue and profits rise in 2022. Despite the global political and economic uncertainties and instabilities that are here to stay, we believe China's economy will bottom out and rebound nicely in 2023. Emerging economies, on the other hand, with their stronger demand, will open up new business opportunities. We will work towards quality improvement and quantity growth, [ seize ] domestic demand of China. And we shall speed up the development of -- and -- strategic resources deployment in Southeast Asia and the Middle East, while taking a prudent approach to risk prevention and ensuring safe business growth for Sinotrans. Specifically, in 2023, we, the management, will focus on 3 key tasks in terms of business operations. The first is to stabilize the overall business while preventing risks. Above all, we must [ seize ] public market shares, and thus inducing Sinotrans group growth. The growth is what we shall keep to the best we can, existing accounts potential should be unleashed to keep our market share. Meanwhile, we will work for incremental business derived from domestic demand and our unrelenting growth overseas. Secondly, we will work on the resources front. We will zero in on customers' needs and build up our product channels to better allocate our strategic core resources. And finally, we must stay off risks. The customer risks, financial risks, overseas risks and security risks are to be systematically managed. The second task is to improve quality and efficiency and fuel growth. Firstly, we will work on customer acquisition. Specifically, we will establish a customer-centric marketing system, set up new energy -- green energy and health care project teams for the 3 rising sectors, replicate and scale up the 4PL plus 3PL model and leverage our CRM and control tower digital projects to upgrade customer services. Secondly, we will enhance our product channels, and hence our core competitiveness. In sea freight, we will continue to drive up the efficiency and handling capacity of ports and form over time, our independent and controllable sea freight channels. We will also seek novel partnerships with the shipping lines in air freight. Based on the model of forwarder plus carrier; we will steadily increase our market share. In land transportation, we will shore up a unified operating platform and core resources allocation. In automobile transportation, we will center on China's domestic demand. We'll wield our technological and business model advantages to pull the distributed transport capacity into the trunk line network. Eventually, we will step up the building of our overseas business network and delivery capability. Specifically, the capacity of overseas territories, their complementation with our domestic business is about how to capture more business from emerging economies and optimizing our European coverage and realizing better synergy with KLG. Fourthly, we will strengthen technological empowerment and enhance smart logistic capabilities. We will speed up the large-scale application of smart logistics to deliver more industry level technological solutions. One such application is that of autonomous driving. The third part -- third task is to strengthen the operations and promote transformation. Firstly, we will focus on constructing key scenarios in operating systems and improving the transformation plan and implementation path. Secondly, we will take an organizational approach to make the digital transformation or DT broader and deeper. Thirdly, we will accelerate the implementation of key DT projects and the construction of supporting IT systems, digital product systems and delivery systems. All in all, in 2023, Sinotrans will actively respond to the changing times. We shall comprehensively push forward a digital transformation and we will take up those key tasks. It's all about high-quality development. This is so much for my introduction today. Thank you all.

Thank you, Mr. Song. Coming up is the Q&A session.

[Operator Instructions]

I mean the challenges of 2022, and 2 small questions for you. Now, the interest rates are rising across the globe and economy is declining. So management will share insights and predictions on the demand side of cross-border and transport as well as your medium to long-term predictions? Second question is about freight rates. And the management just noted that the sea freight rates had dropped close to the level of 2019. May I know what the company would think, especially coupled with the rising capacity? So what will the company think about the impact having on your business in 2023 and the solutions?

And you just mentioned the overall international market demand has been put under pressure, impacting on China's cross-border logistics. The reasons are manifold. In the past 2 years due to the pandemic, Europe and America were periodically building up their stocks as the epidemic stabilized. Now these overseas markets have become -- coming to the cycle of destocking and that will negatively impact the Chinese export. To take the longer-term view, China is a manufacturing industry and its export advantages will be displayed in the future as a global manufacturer hub. China is very competitive in terms of cost and efficiency and these advantages will continue to play out in the future. So there will be pressure in this year but over the long term. And we want -- we hope to see a recovery in a shortest possible time, and that's key to Sinotrans business. When it comes to freight rates, the impacts are manifold. First, on the demand side, if the cargo volume dipped, it would track down the freight rate. There's also factors on the supply side. In the last 2 years, the freight rate had remained high, so shipping lines have increased their capacity. But in the recent 2 years, the annual growth in capacity was 7%, so pressure in the industry, even though the freight rate has dropped rapidly. But now we can say, overall, it has dropped back to the level -- to a normal level of 2019, or even lower. And the shipping lines themselves in order to keep a better supply-demand balance in terms of planning a route and planning their capacity, they will make some adjustments. I bet I'll say we have bottomed out. But relatively speaking, we have come to a place where the supply and demand are relatively imbalanced. But we won't likely see a rapid rebound in the near term.

The next question, please. This lady on the front.

In the first half of last year, the sea freight business benefited from the improvement in business mix, especially in terms of the utilization and profitability, but it dipped largely in the second half. And second question is about how you will see the impact on the utilization and the profitability on this business and this year?

Well, last year, the global and overall economy was very complicated and challenges were severe, including geopolitical tensions and inflation, and these negatively hit the export demand, especially the freight rate. It dropped from the first half high. The freight [ rate ] drop was seen in air and sea segments and that has shocked the company's business last year at a relatively high freight level to prevent risks. We made some choices. In terms of some lower profitability customers, we are dispensed within -- we focus more on the [ multi-lanes ] customers. When it comes to air freight, now we see the cost is rising and routes were diverted and fuel cost has been climbing and this also impacted our second half performance. And towards the end of last year, with our all customers or our lessees, we decided to ride out the difficult times together. So we gave away some profit, they're helping them. And so these are all impacts on our profit last year.

Now we're turning over to online investors. The first question from [indiscernible].

And my question is about Dow Jones report, whether it's external market, and now your business, especially the Yangtze river-related business and the shipping business is all related to Sinotrans. So what do you see in the 5 and 10 years' time? And how would you position this business and what is some of the strategies? The second question is about the digitalization. Some companies in Asia achieved notable improvement in the performance, with implementation of the DT strategy. Could you elaborate on that? And we've been following on Sinotrans for a number of years. Any logistics companies needed complementation in terms of operating and financial parameters across regions? And how would you achieve the best balance between different of your units overseas? And how would you measure the performance in light of digital transformation project?

Maybe I have not explained that clearly, but Mr. Mr. Feng, Chairman of the Board, regretfully couldn't make it to this on-site meeting. And I also thank you for your participation. To your second question first, I mean for -- investors or analysts may be interested in our digital campaign. It was a macro question related to not just Sinotrans, but a number of other companies in trade, and you asked about the 5-year horizon. About our digital transformation campaign -- but that's not a matter of technology. It is not a purely technological or engineering project. Our DT campaign was a response to the new change in the new times in a new era. So it is an organizational transformation and business transformation. We need to transform ourselves from traditional business lines where local business units, they used to operate very independently. And now we expect all of them to work closely under a coherent headquarter strategy so that all will develop in synergy in a long step. Our aim is to achieve a full network and operation in this industry. They used to manage customer relations independently. Sometimes there could be a conflict of interest. Now we advertise more on shared interest. We used to focus on the single part business -- of course, a [ single lane ] business, or the lanes weren't many. Now we're looking at the -- a holistic product or solution when it comes to contract that we're very -- we used to focus only and demand. We're now looking at a more centralized and forward-looking approach when it comes to resources management or procurement management. I believe that I have given you a brief recap on some of the main DT components. And customer relationships and operating capabilities are -- need to be centralized. Our logistics resources and IT system and all these productive factors need to be centralized through adjustment of our flows, processes, organization and mechanism. We should form a holistic mechanism. So this is what we're doing with our DT campaign. It is full of challenges. We are starting with our advantages of Sinotrans. That is our operational capability and our logistics service. We want to create some products and systems revolving around these products. With this business transformation, the overall business and operation of Sinotrans will be more holistic and different parts were operating more complementary to each other. And the management will be more centralized and efficient. And the goal of the transformation and our organizational perform, now we have a main line and overseas segments. And different segments or regions largely operated independently and they have not been well empowered by our professional lines. And at present, sea freight, air, are some of our main directions. Now we have launched some pilot schemes of that digital transformation with the product as core and this is our approach in the future. We're developing a unified system to better allocate global resources supporting our units to leverage their operational advantages and local advantages to better serve our customers. And our marketing team will create better product for our customers and our services. And delivery standard will be more consistent and come in higher quality. And this is my brief recap of our digital transformation campaign. Regarding your first question, you may know that in the transport logistics and the CMG business and a number of business, our units are operating in this sector. But the overall direction and the resources deployment -- there are different deployment of resources, some of them focused on tanker-shipping. But we, Sinotrans, focused on overall services. The [ trunk line ] is the key to this business. We won't spend much resources on the tank shipping. At the same time, we will leverage our Yangtze River as feeder advantages. More resources will be devoted to Yangtze River feeder businesses, combined [ trunk line ] with feeder lines so that the overall capacity will become more controllable to ensure a secure and safe supply chains, because we are working closely with our business units and there are some overlappings in our businesses. So we will step up our synergy with them.

Thank you, management. We have many questions online. So the next question will still be online. So if you have any more questions on site, please wait. The next question comes from Lin Shan of Huatai Securities.

Two questions. First is about logistics. You just said that in 2022, the logistics performance was exceptional. Now, coming -- in 2022, the logistics business, can we break it down in the domestic performance and overseas logistics performance? And second question is about overseas development. And you said the focus was on Southeast Asia and some emerging markets in 2023 and '24. What are your expectations from the Southeast Asian markets and perhaps the Middle East markets? Now, this is a region for very rich in terms of oil and money and they could support a better consumption. And so what are some of your views on these 2 markets?

First, to your first question, you noticed that we recorded good performance in the logistics, whether it's in terms of scale or the profitability. And you're more interested in the logistics and the mix of domestic and overseas businesses. I don't have the exact numbers with me. It's mostly coming from -- I would say, 90% coming from domestic 3PL business. As for overseas business, it was growing quite well, for example, in Africa, in Middle East and Southeast Asia. But the overall revenue contribution was not big at this moment, but that has shown the trend of how we reconfigure our business. To your second question, the markets, you just mentioned, they happen to be some of our focused areas. Southeast Asia, for example, in the past 1 year or 2, we have basically covered the [ trunk line ] networks. Southeast Asia is an important growth area for us overseas in 2023, '24, or even over a longer time span, we will continue to focus our overseas resources on Southeast Asia. It is one of our growth areas. It is not the only one. As you said, the Middle East, there's also another focus actually in Dubai and surrounding regions, whether it's in logistics and traditional business or air freight business. They have been growing quite well because it radiated to Turkey, East Europe and North Africa. So this is an important region for our future business. In the meantime -- and having an acquired KLG, and this segment has done pretty well. We will show our resources and network in Europe. And another focus will be in Latin America. And this will also be some future growth areas. A few remarks about the Southeast Asia. As Mr. Song said, it will be a major direction for Sinotrans in the future. You see the SEA economies are developing quite rapidly and industries are being shifted steadily from China to SEA countries. We can see 3 opportunities in the future in this region. The first is China-Laos Railway, which was operated at the end of the year before last. We are working closely with -- the road and rail networks open up. And the network, or the cross-border transportation network be in place, making up Southeast Asia and the domestic China. If it is opened up, it will be a great opportunity for Sinotrans. And recently, we also have been promoting business transformation in Southeast Asia. We used to do only a freight forwarding business, but now we have spanned into multifunctional businesses. Our contract logistics have taken on great business scale. So it will be very important for our -- serving our Chinese or even multinational companies. And our localized business have also grown decently. We used to service our Chinese companies operating in that and overseas territory. But last year, our business was localized remarkably, because, you know, many MNCs or other companies are moving their business from China to Southeast Asia. And the cargo flow from Southeast Asia to Europe and to America has been booming. So this is one area of opportunity.

The next question online from Mitchell. He is an investor.

Recently, a topic with -- storing a lot of attention is the supply system, but the focus is more on the SOEs. Now their qualities and business quality has been subject to a higher demand. And what impact would it have on Sinotrans? The second question is, in the future, whether Sinotrans will increase the dividend payout?

Here, we have watched closely what has been proposed by some research institutes as the valuation system of -- with Chinese characteristics. Now I'm not giving a comment on this valuation system, whether it's a public company or an SOE, the core value is in delivering sustainable return for our shareholders or investors. So Sinotrans will without a doubt continue to improve our operating efficiencies and performance, and this is the best we can do for investors. In the past decade, our business has been improving and the business quality. The annual compound rate, as I remember, has reached 20% in a decade. Now our dividend payout has been steady at 30% based on our capital, our cash flow and how to reward our investors for their trust. We have been steadily raising our dividend payout. And we are introducing medium and long-term share option to better incentivize our management team to put the [indiscernible] built with our investors. And we are looking at all ways to envision the value of our business. So, if we can sustain this growth over the long term, and giving our investors a decent return, I believe, we'll evaluate -- value reasonably in the market. But we agree that Sinotrans is not valued probably at this moment. But I hope through a better knowledge of Sinotrans, we will be better valued by the market.

Next question from online, an investor [indiscernible]

Regarding the capital management, with -- regarding the contract logistics, even against the backdrop of the epidemic shock in China, you managed to grow in both revenue and profitability. And you said contract logistics is a key driver of the company. Now in 2023, people have been optimistic about the domestic demand of China. So what kind of increase we'll be looking at of this business related to the China domestic demand? And in the future, what will be some of the key growth drivers for the company?

Answering your first question, our estimate for the contract logistics in 2023 -- And we have analyzed and done some research. Our conclusion is it will form a major growth driver for the company. When it comes to scale and operating performance, we are quite upbeat about contract logistics. Second, how we are going to improve this contract logistics business? Chinese economy is recovering this year. Even against the difficult backdrop in 2022, the performance of the business segment performance was satisfactory. So we are all more confident about our performance this year. And we are consistently consolidating our defined advantage resources and the digital transformation has been playing a key part in contract logistics. That will enable us to better reconfigure our service of strategic customers. Now most of the customers of this segment are top businesses in or outside China. And in recent years, we have seen that these top companies, whether they are Chinese top 500 or the world's top 500, they are enjoying closer and closer ties with Sinotrans. I'm not sure whether you have noticed the logistics -- contract logistics or 3PL in the recent year. We are combining the 3PL offline capability with the 4PL capability of our online drive and notable results have been made. And this will propel our performance in this segment in this year and in the years to come, whether in terms of best quality and quantity.

And the next question from online from CICC, Jingke Zeng.

Now, you've just given us your views about the supply and demand. In 2023, do you have any specific predictions? For example, you operate 18 of routes. And in 2023 -- will you increase or decrease your capacity deployment in 2023?

This year, the overall market is complicated. Last year, in the first half, the market remained high and it's developed [ plus ] in 2022 -- in the second half of 2022. So made it hard for us to estimate how we're going to carry out our procurement plan and capacity deployment. So we will remain very cautious. But as I said, we'll ensure it stays stable, and sustainable supply chain and service for our customers has been our overall focuses. So we need to take some capacity into our own hand, whether it's in terms of air, freight or rail -- or sea or rail. We will build up some own in-house capacity, but it's pretty hard to give you a very accurate predictions of how we will deploy our resources. But I can assure you that we're delivering safer as service because we never procured capacity based on to be the profit margin in terms of the price difference, whether it's in charter flight or a chartered routes. It is -- well, annually, we have 220,000 tonnes. When it comes to cargo flight, the charter flight, 50% or 80% of our routes have been locked with our customers at a fixed rate. So the impact on us will be subdued, whether it's for business development, for our service, for our customers. We will cautiously procure capacity and use some contract arrangements to minimize the risks.

Any questions from on-site? Lady on the second row?

My question is about the company's enhancement of multi-lane business in recent years. What's the exact percentage track now and how much more can the percentage grow?

Indeed, in recent years, we have put a lot of effort in this area. We look -- we hope to provide more a whole industry chain services for our customers and the percentage has climbed. But the overall percentage is not very high at this moment. But in a single unit, profitability has improved. Our sea container, the single TEU profit has risen in recent years.

Next question from on-site. The lady on the fifth row.

I'm [ Cathy ] from HSBC. A few questions. The first question, you said that the charter flight about 50% and 80% have locked in the freight rate. Are you talking about 2022 or the year 2023? And do you have any plans to repurchase shares? And what are some of your outlook on capital expenditure? The third question, what about the Sinotrans DHL-JV, any expectation or outlook?

The air capacity lock-in in charter flights, that's what I've been doing in the recent years. We usually procure capacity based on our customers' demands, but we cannot fully satisfy -- service their needs. Otherwise, we have to over-procure. Now, the excessive capacity can be deployed into the market. The one reason for a remarkable profit growth in recent years came from the premium of this excessive capacity, and this is the model we will carry on in the future. But if the freights fluctuated, this model can help us minimize our risks to a level that is tolerable. So I believe we will be doing this in the years to come. In [ Asia ], we will continue to repurchase the shares. But in the mid and long-term planning, we have some arrangements like this as with other markets. Based on our cash flow or our capital we will consider it. And we will send a clear signal to the market if we want to get down to one. And well, about CapEx and JV with DHL. In terms of CapEx, annually, its RMB 2 billion, mostly devoted to acquisition of infrastructure like warehouses. The National Development and Reform Commission in its 45-year plan talked about the logistics resources acquisition and providing companies with great opportunities. And these are the opportunities we should see in major cities, Beijing, Shanghai, Shenzhen, [indiscernible] Greater Bay area. We will diligently acquire logistics and warehousing resources. So the CapEx for this year will grow from last year. As for the JV, the business volume was hit due to the macro environment. The profit was down 7%, also down versus revenue. But the overall performance was stable. And the overall profit was RMB 1.87 billion. Even though it was down, it was decent when it comes to reliability and quality and efficiency. This JV will grow along these lines, and because we have been leading the market in these regards. Even though the charter flight demand has recovered slightly, but in the overall market after the pandemic, I would say the JV itself, thanks to its historical advantages or the market position in the recent years, it has developed exceptionally. And I can say that the business itself will be even better than 2019.

Now one more question from this room. [Operator Instructions]

In the traditional container industry, your freight forwarding business, what kind of cargoes you were dealing with? Are there any changes in the cargo mix? What are some of the destinations? And are there any changes in the route configuration? Now, the container and shipping industry is going down, and how is the company going to increase revenue and profit to -- against this backdrop?

When it comes to sea freight and cargo volume, it is largely consistent with that of the country as a whole, because we're not serving a particular industry. So the volume mix or the cargo mix is pretty similar to the statistics released by the customs, and destinations mostly are in America or Europe and not so many to South America. And we don't procure a lot of capacity over the long term from the shipping lines and mostly procure based on our customer needs. So the long contract signature -- the impact from the freight rates for this kind of business is almost negligible. And we're looking to increase the profitability of our freight forwarding business. As I said, 80% or a large proportion of it was devoted to a single chain business service. So we can only re-profit from one link in the chain. So in the future, we will continue to expand our service [ of ] chain. If we can deliver full chain services, there is greater potential for growth here. Secondly, the macro competition has been very fierce with pressure and assets, huge. But the same pressure will be given to our competitors as well. That's why we said we must focus on seizing market share and turn it into our growth. Our overall enhancement and the capacity in our service will be the focus in our drive to capture more market share and hope that we -- by the winter, we can create more value for our investors. You also hear about our cargo. So for your reference, actually the mix is roughly the same year in, year out and same as the overall Chinese statistics, the interracial is 48%, including Japan, South Korea, Southeast Asia and South Asia and 15% to Europe and 14% to the U.S. It was only a difference of 1 or 2 percentage points over the last few years. You asked about the international container market. The delta in pressure was indeed huge. We know the pressure is equally huge on our competitors and shipping lines. How we're going to ensure Sinotrans a competitive player in the market? We will look at the [ multi-lane ] strategy on the change and technological upgrading. But I should say the [ trunk line ] capacity is not as scarce as a few years ago. But the pre-carriage will be one important component for the container industry chain. And this is one area we are working on.

Now question from Changjiang Securities online.

I'm Yichao Han, representing Changjiang Securities. In 2022, I would like to know the profit and revenue mix. In the medium to long term, how are you going to expand your logistics network?

Could you repeat your first question?

Revenue from direct customers, what goal we are looking at?

Direct customers have accounted for 50% of our customers, and it's always 100% in our contract logistics or logistics. Direct customers of course is one area of growth in the future. It is also where we can deliver full industry chain for our customers. And we value direct or indirect customers equally. So we haven't set a specific target for the direct customers' percentage. But we will be revolving our work in terms of delivering supply chain products around our major account as for the growth of overseas network. And the Chinese economy is continuously shifting and service with the overseas economy. So we will focus on Southeast Asia and Middle East. The cross-border business or the air freight businesses will focus on Europe. And one more area you may have overlooked is Central Asia. And we can see in this region, whether it's in nuclear power or the [ EPS ] and technology, or the wind technology, they have been growing pretty rapidly and we have won some business in these areas.

The next question online from Xin Yue representing Guotai Junan.

Two questions. The first one. The management, you said there's a tailored sea freight rates have dropped to a relatively low level, and how will it be manifested in the company's business? And the second question is about cross-border business. Is there any room to acquire companies or merge with other companies upstream or downstream in the industry?

Could you repeat your first question?

What kind of opportunities were you talking about? I mean, do you have any opportunities in terms of profitability? So do you mean based on the current sea and air freight rates at lower level, and any opportunities you can find from this macro backdrop?

To respond your questions, I think, we've actually addressed that your question to a certain extent when answering other questions. When it comes to sea and air freight rate, supply chain, safety or security is our focus. We need to take some capacity into our own hand. And in recent years, whether it's in sea or rail freight rates, they have been at a very high level. And we are in a very good position in controlling the freights. And now the overall freight level has dropped to 2019 level or even lower. So basically now customer needs -- Sinotrans will procure or deploy some capacity to reduce the risks. Of course, we'll not blindly pursue such arrangement as we said in charter flight and our capacity deployment will due closely to the needs of our major customers. When it comes to cross-border and logistics, whether it is merger or acquisitions, whether the opportunities in the future, well, I can tell you, in the future, in overseas, we'll be moving ahead on mobile fronts. We will do it on -- we'll work on deploying free resources and in emerging economies. If we cannot deploy enough and personnel resources in a short period of time, we don't rule out M&A to ensure about capacity in these regions. Now, I see where it will come from. Over the past 2 or 3 years, the container trade -- we use the container trade as an example. Whoever has the capacity, has the say, and now is returned to normal. I would say, whoever has the cargo and customers, has the same. Now you can make your own judgment whether we have opportunities in this regard.

Our final 2 questions, one from online, [indiscernible].

Two questions from me. First is about the demand side. Q1 to-date, do you see the demand has stabilized? The second question about import and export. Market is overall concerned about import and export this year. And the country has set about increasing the export. So if you have any new measures in increasing the export volume? And when it comes to profitability, is import profitability higher than export business?

The import issue you would talk about, was missing from our presentation. But that's exactly where we've been working on since last year. Specific measures include: firstly, all our domestic -- all our units and focused on expanding the import business [ sure ] -- domestically this business. We also have such requirements for our overseas units and they have received their assignments. And firstly, the air freight business recorded is satisfactory performance against great challenges last year in terms of geopolitical tensions, [ round ] aversion and fuel cost increase. On performance was -- thanks largely to the charter flight capacity and air import. And these have greatly lowered our overall operational costs in the first 2 months of this year. And you can see the demand was not very encouraging. There are many reasons to it. Thus, the international market has not recovered in terms of its demand; and second is spring festival factors; and thirdly the high base from the rapid growth in the past 2 years. Now, we are talking with some of our major accounts. The review of Chinese economy and export in the future remains cautiously optimistic. Now we can see that [ Mandarin Oriental ] rates have increased and flights are fully booked. Maybe it takes some time for these to be manifested in the actual economy in the results. But we are optimistic that the China's export will recover pretty soon, and we hope to see such a recovery pretty soon.

Last question from on-site. Gentlemen on the sixth row.

I'm Jeffrey [indiscernible]. And management, you just have noted that you could consider M&A to speed up your brand in certain business segments in the coming year? Do you have any plans -- or specific plans to develop a certain part of your business?

Our M&A can rapidly help us to grow our business in certain overseas region or segment. This is our overall strategy and over the last few years. And we have a good example. The Sinotrans didn't have a very strong network in Europe in 2019. We acquired KLG. That upped our operational capacity in a very short period of time, not just in terms of KLG's operating performance, but also in terms of the overall influence and service capability of our service network. Many contract logistics business of our Chinese companies in Europe having referred to us or KLG. Without this KLG, as our basis, it's pretty hard to -- for us to expand our business in Europe. So we will carry on with this strategy. And this year, when it comes to M&A, we will pay more attention to SEA. It is geographically close to China. So we could have some arrangements or plans here. But the M&A is brought with the challenges. Freight rates remained at a high level, leading up to a very high valuation and expectation. But now with the performance downturn, there could be a vast gap between buyers and sellers expectation, or evaluation. But we will not waiver in carrying out this strategy. Thank you all.

Thank you all you investors from online or on-site. This is so much of the results announcement of the meeting. If you want to obtain our PPT, you can contact our IR team through the numbers shown on the official website. Thank you once again on behalf of Sinotrans for your continuous support and attention. Thank you.