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

Good afternoon. Welcome to the 2023 Interim Results Corporation presentation from Sinotrans. I'm the moderator from Sinotrans. Today's meeting is going to be held online, and we are going to present our interim results as well as answer the questions from investors. At the same time, we are also going to upload our informations on the official websites of our company. And today, we are going to give the floor to Mr. Song, who is the Executive President of our company, Mr. Song Rong, to address it. We are also here together with Ms. Li Qian, Independent Non-Executive Director; as well as Mr. Wang Jiuyun, Chief Financial Officer; as well as Mr. Li Shichu, Vice President, Board Secretary, to participate in today's meeting. Today's presentation is going to be divided into 2 parts. The first part is the presentation of our company. The second part is going to be the Q&A session. Now we are going to give the floor to President, Mr. Song to address us.

Distinguishing investors, ladies and gentlemen, good afternoon. First and foremost on behalf of the executives, I'd like to extend my warmth welcome to all the participants today. Last Friday, our company has released the 2023 interim results. And we are also seeing that despite the competitive and our changing situations in the overall economy, the under pressures of the freight rates as well as the harsh situation in the logistics industry. But through the revenue effort from the Sinotrans, we have transported the incremental factors to the market to the increases in the shares. And we have underperformed the general situations in the market, demonstrating the resilience as the leading companies in the logistics industry in China. At the same time, we have a key business highlights on the dividends of the shareholders. We have suggested to have the interim dividend per share up about RMB 0.145, with the dividend yield of 48% (sic) [ 45% ] creating a historical record. Now I'm going to give you a brief introduction toward the company. In the first half of this year, driven by a sluggish demand as well as operating in the freight sector the containers as well as the year freight has entered a huge downward trend. Currently, the levels and the index of the freight rate in the sea and in the air is approaching the same level in the year 2019. From the supply side, according to the United Nations, this year 2023 we are going to create a new report and the global sea freight container capacity, while [indiscernible] to the air freight sectors. In 2024, we are going to enter into a new period for the general delivery, while releasing the capacity for the [indiscernible] for the transportation. From the demand side, we estimate that in the year 2023, there was global demand for the sea freight is going to be dropped by 0.8% year-on-year. That is to see the sea freight and the air freight market is going to be under huge pressure in a short period time in the future. Facing this ever changing market situations, our company has twice our back to transform the inventories in the market to the incrementals in the market, according to our business structure, keep us great control of the risk and demonstrate a very strong resilience in our operations. In the first half of the year 2023, our company has registered revenue of RMB 47.8 billion and RMB 2.2 billion is net profit attributing to the parent companies. We have achieved year-on-year growth in terms of the interest rate as well as the net profit reach as well as improving the operational capacities, the net cash flows as well as the balance sheet among other different financial sectors have been kept in very good momentum. This kind of result is benefited from our evermore proceeds for operating customer structures and promoting the companies to enter into the development channels. Our company has also put an insight on the key sectors and emerging sectors and have organized 3 focus in the new energy vehicles, the green energy as well as the medical care sectors. Our core business has been improving our cost of revenue further with improved customer structures. They see freight has seen an increase in the sales trends, while we are also seeing increases in the multiple chambers, deliveries, the divisional profit is also achieving our further incremental performance and also finish the incremental business for the Sinotrans and CSC’s, further enhancing our business structure in the transportation sectors alongside the Yangtze River. At the same time, we have further enhanced the co-operation with the ship owners further increases our capacity in the Yangtze River waters around other different transportation rights. In terms of the air transportation, we have worked on the strategic part to work on the new types of models for the new type of carriers. We have also optimizing our structures in the global demand with a downward trend in the global air freight months. In the first half of this year, the total transportation of our company has been achieving 106,000 tons of capacity, while the air freight capacity has been reaching 427,000 tons with an 8.4% year-on-year freight. The cross-border e-commerce logistics has been working really hard and achieving the new markets in Africa, Middle East as well as Latin America. We have put forward multiple different packages for the cross-border product and the cross-border portfolios as well as developed China transported to Mexico. In terms of the railway transportation, we grew the growing opportunities in the market. We are registered growth of 15%, 30%, 50%, respectively, and the railway transportation will be increasing revenues as well as the division of perfect amount which we are seeing a 43% growth in the international railway transportation. For the vehicle transportation, we try to optimizing our structures and enhancing our transportation capacity. In the first half of the year 2023, we have worked on the segmented market. We are also seeing a specialized logistics departments, the [ retail ] profit grew by 23% year-on-year. In the cosmetic and the sales sectors, we have built a cross-regional integrated logistic solutions, actively enhancing our building capacities in these areas. We have nearly increased 10 millions of the users as well as we've been addressing the new opportunities in the new energy sector. The science and the electronics industry has also enhanced our capacity. We are also working on the transformation solutions in the medical sectors. In terms of the chemical sectors, we are enhancing our client bases while seeing an increase in the revenues as well as the progress. In the year 2023, we take a deep dive in the Hong Kong, focusing on the Southeast Asia as well as develop in Middle East and Latin Americas focusing on overall development in overseas and cross-border development. In terms of the deep dive in Hong Kong, we have built an incremental development in areas focusing on the customers' project as well as the connections between these areas in terms of the focusing on the Southeast Asia areas. We have been working on the 3 different channels in the air, railways and also the sea. Working on enhancing the corporation between Vietnam and Thailand, including 6 different air freights, while working in the developing the Middle East and Latin America, we are trying to focusing on the cross-border e-commerce, small package portfolios. In terms of enhancing the European business, we have opened up the European region chartered flights between Ningbo and Liège. And we have also built a new ste up operating businesses in Hungary, enhancing our overall layout in Europe, while keeping a new high quality operations in the KLG Group in the year 2023 by working together through the digital transformation and working on the platform businesses, we are going to enhancing our capacities in the new carbon areas. Let's look at the specific performance. The centralized logistics revenue has achieved RMB 14.8 billion with a divisional profit of RMB 560 million amounted to the contractual logistic revenue, which is RMB 11.4 billion, 8% growth year-on-year and divisional profit of about RMB 430 million with a 17% growth year-on-year. It is the greatest contributor to our profits. Although we are seeing a downward trend in terms of business revenues in the logistics [ characters ] but because of the first half of this year, we have keep a revenue record high interest rates. The divisional profit has achieved a 27% growth year-on-year, while the chemical logistics has been achieving a 17.1% year-on-year. In terms of our agency businesses, it is the cornerstone of the companies. In the first half of this year, the revenue is at RMB 28.3 billion, while the divisional profit is RMB 120 million. The sea freight rate has been seeing a downward trend because of the shrinking demand, but we have extended our service change and increasing our overall agency sectors, making the sea freight to divisional profit to reach RMB 421 million. The airfreight is seeing a growth of 8.4% growth year-on-year. But due to the downward trend in the first week, the revenues and the divisional profit is seeing a downward trend, but they're still better than the performance in the year 2019. The railway transportation has achieving a record high in terms of the business revenue as well as the divisional profit. In the e-commerce platform, in the first half of this year as well as the divisional profit, we have seen a downward time year-on-year. This is because of these core quarter income of freight has been greatly affected by the air freight sector. And looking forward into the second half of this year, we are going to suffer from the insufficient demand domestically as well as risk reference in the international market and the oversupply in the supply chain. We are going to deal with this ever more challenge from the following new 4 sectors. First, we are going to stabilize the overall performance, than trying to derisk [ crude ]. This is going to be our priorities. We are trying to make sure that our effort is going to return internal stable operations in the company's overall operations throughout the year. First, we are going to stabilize our customers with a deep dive in terms of the trend in the sectors as well as the impact of the smart customer demand. We are going to innovate the strategic customer cooperation. Second, we are going to highlight and prioritize our cabin sectors. The contract business is going to focusing on the high-growth customers while working on expanding the new customers in the sectors. In terms of the safe freight factors, we are going to work together with the shipping companies to create the terminal-to-terminal logistics service supporters. In terms of the air freight, we are going to work on the new different models for the new types of carriers, enhancing the operations in the European and American line, enhancing the operations and coordinate the efforts. In terms of the railway business, we are going to work together with the service owners. Thirdly, we are going to increase our capacities to deal with the potential risk especially focusing on the security risk, credit control risk as well as the over [indiscernible] rate Second, we are going to increase the capacity, increasing the quality as well as the performance. First, we are going to focus on the priorities and enhancing our positions in the market. Having Chinese companies to go to overseas is going to become one of the priorities for the China clients, enhancing China transit capacity and the domestic logistics sectors. Secondly, we are going to enhance the operations in the incremental factors, and we are also going to working on the increasing of the processing efficiencies as well as optimizing our operations, as far as optimizing the business structure. Thirdly, we are going to use the funding innovation to be the entrance for the further development well as enhancing the freights and technological innovation, focusing on the smart logistics technologies and without applications. At the same time, we are also going to [indiscernible] logistics trying to optimize the dual carbon management systems trying to translate the green logistics projects areas. Fourthly, we are going to promote the overseas capacity business. And we are also going to work on the Southeast Asia as well as Middle East. In terms of the customer clearance, transportation, inventories, as well as the deliveries on this. At the same time, we are also going to enhance the resulting investment in overseas. Thirdly, we are also going to focusing on the operations and the transformation. And in the second half of this year, we are going to consolidate our consensus, enhancing our investment accelerate our state as well as focusing on the digital transformation and top firewall designs, trying to make sure the transformations of the digital commissions to be reallocated making sure that the digitalization is going to be really rooted in our company. Fourthly, we are going to calculate the talent and build definitely capitals of these talents. We are going to focusing on promoting the 200 targets building the total balanced inventories, focusing on the overall workplace sectors of this -- our challenge and enhancing the overall talent capacity building in the overseas companies and providing the high-quality talent support for the company. Moving into the second half of this year, we are going to work harder, with an evermore focus for the high quality and high dimensional development of the Sinotrans in order to give a place in terms of the support to the distinguished investors. Thank you so much, Mr. Song for your kind support.

Now, we are going to open up our floor to the questions. [Operator Instructions] Now the floor is open up for questions. So the first question is Mr. Hai YAN from Shenwan Hongyuan.

I'd like to congratulate Sinotrans for achieving such a good result. This is above our expectation and recently also seeing the results in these sectors. I think that after digitalization, there is an upward trend in terms of these revenues. So I also see there is a huge upward trend in terms of the contract for logistics performance. So my question is directly to the contractual logistics sector. So what is the reason behind this huge growth? And what is going to be the reason supporting it? Second, although we are doing a good job in these sectors, but we still keep locate. Other than in terms of these cargo transportation with the biggest player in China, could you tell us about the actual usage of these digital platforms as well as the rule in place in terms of the facilities in our business.

It's about the contract logistics. Another question is about Y2T. So I'm going to take the first question, and I'm going to pass the second question to my colleagues. In terms of the contract logistics, with a very good development momentum. I think you might heard from the performance of the purpose that we have kept a very good momentum. This is because starting from the previous 3 years, in the sectors of the contractual logistics, we managed our content and improving our performance, applying the TMO tools as well as increasing the management capacity. This series or portfolios of the tools help us to improve the operational efficiencies and lower down the operational cost. This is the one side. On the other side, the overall performance of the contractual logistics is inline with our strategies. We are trying our best to serve the top 500 companies and because of the increase in terms of these efficiencies, we have strengthened the customer loyalties, making sure the customer is going to bring more results to our final performance. And thirdly, internally speaking, in the contractual logistics, we have reorganized and restructured our contractual logistics business, making it a very integrated factors of our business. Moving to the future, we are going to integrate more resources coordinating more customers and trying our best to new big contractual business with a not such optimistic background of the market. I am quite optimistic about the future of the outlook of the contractual business. So this performance of the contractual business sectors in the past 2 years is also due to our strategic priorities. We have also provided the telemed services of the logistics solutions to our customers. We are also applying the digitalization solutions in terms of the sectors. There are some of the prearrangement in these sectors. This is also helping us a lot in terms of the business sectors. Thank you so much for your question.

The second question, I'm going to direct you to Mr. Xiang, who is going to answer the new question about the Y2T.

I'm going to give you a brief introduction towards Y2T. Y2T is the digital logistics platform for the Sinotrans. It is undertaking a digital solutions in this sector. The Y2T was a project that we have built through the year 2019. Currently, it is a multilayer platform, helping us to achieve this operations in the level -- high-level executives, at the end of this year, we have finished the first month of the capital raisings of the Y2T project. In terms of the development of the Y2T. We have acquired the digital transformation opportunities from our industry providing the whole industrial Chinese solutions to the customers as well as the 4K solutions, we have connected the digital connections and enhancing our digital performance. In the year 2022, the Y2T has registered revenue of RMB 3 billion. This is not the revenue, it is the profit. In the first half of this year, we are accelerating the layout in the Y2T and registered an 80% growth in the Y2T sectors in the first half of this year year-on-year. The daily visit of Y2T platform is reaching over 80,000. This is a huge layout product compared with the last year in some of the business sectors, we are working together with the overall layout of the Sinotrans. Trying to achieve overall views of 10,000 customers and [indiscernible] operations. Y2T is a very important platform for the digital transformation of the Sinotrans. Combining with our priorities in these sector, we believe the priorities could be imposed, for example, with the digital transformation of our Y2T, more and more logistics products can be demonstrated in these areas. At the same time, we are working together with our online and offline teams, trying to provide the fourth-party plus third-party solutions to the end customers boosting the positions in these sectors. Thank you so much for your kind questions.

Now the question is coming from Huatai Securities is Lisa Lim.

I have 2 questions. The first one is about the agency business in the air freight and sea freight. We have noticed there is a downward or decrease in the sea freight. But we were also going to see that in terms of the pre-order profits, there is a huge difference between the sea freight and the air freight. What's the difference between the performance of the sea freight and air freight in the first half of this year? Second, what is your outlook to the 2 sectors throughout the year? Thank you.

I'm going to take your questions. You are focusing on the sea freight as well as the air freight as well as gross profit per order. This is due to the different operational models in terms of the sea freight and air freight. Sea freights gross profit, the levels of the airfreight, and although we are seeing a downward trend in the sea freight this year, but the business sectors remain stabilized. In terms of the air freight, starting from the year 2019, we are trying to push a revolution in the air freight sites in order to integrate with the digital platform. That is to say its overall operational capacity is better than we estimated and it is also closely related to our operations this year, with these downwarded trend. I think this is creating some of these tools in the general performance. The trend in their gross profit is due to these different business models. Second, let's talk about the policies. From the general operations and the general performance of our company, in order to pay the investors back, the company's executive decided to increase our dividend per share. Moving to the future, based on the performance of our company, we are going to better arrange the dividends for the investors. I am not going to give you a very clear numbers about the dividend yield, but I believe the numbers that we have given in the first half of this year is representing the determination and efforts of the executive.

Now we are going to give the floor to Yichao HAN from Changjiang Securities.

With the complicated overall performance, we have achieved a very good result in the Sinotrans. I have 2 questions for you. The first slide is the freight rate of the containers is reaching the same levels compared with 2019. So my question is that, what is your outlook to the second half of this year? How can you define the demand? Second, as well as the pricing. Second, with the U.S. economy coming back to the regular performance. Well, Chinese economy is also recovering back. Does it mean that in the second half of this year we are going to see a turning point in the performance of Sinotrans? These are the 2 questions.

The first question is about the freight rate, right? As mentioned the demand and the freight rate in the air freight, sea freight as well as the railway freight. The second question is about whether are we estimating a turning point in the overall performance? I'm going to take your question. The first question is about the freight rate in terms of the sea freight and of the air freight. We can see from the demand and supply side, generally speaking, until June this year, the freight capacity of the containers across the world is 27,000 GPUs, 47% increase compared with last year. Development institutions is making our estimations that in the year 2023 and 2024, the demand is going to increase by 7%. And from the demand side, in the second half of this year, in Europe and in Americas, because of the high inflation as well as the energy crisis, the general consumer capacities in the new market, U.S. markets was quite weak last year. And then the first half of this year, Chinese companies are trying to increase the freight capacity for the containers. Although we are seeing some of the bouncing back in the second half of this year, including the transportation freight in Europe and in America, but actually this is a result achieved by the company. Now building the alliance and controlling different factors, this situation is not going to be continued in the long term. According to our estimation from the demand side and the supply side, we are going to keep our rather conservative attitude to the performance in the second half of this year, there is not going to be a very huge rebound about the performance. Although we are trying to keep the performance in a very stable trend, ours, as I mentioned in the freight rate is that we are going to stabilize the number in the second half of this year. This logic also applies in the air freight. The transportation capacity in the first half of this year is approaching 9.9% compared with 3 years ago, in the year 2019, I would see the performance is [ 3.7% ] higher. 70% of the international air freight is coming from the stable aviation sector. But based on the [ poles ] estimations, the air freight capacity in China is increasing all the time. We have estimated that in the second half of this year, the transportation capacity is going to be further unleashed. Creating some of the actual rooms for the international commercial airfreight. From the demand side, according to this logic, the demand about this freight rate in the first half of this year is going to be increasing by 8.5% this year. We are estimating this widening trend is because of the overseas market as well as our huge demand in this sector. We are also quite familiar with the new freight sectors. The current pricing mechanism is approaching with the same level in the year 2019. We believe the rail freight rate to Europe is decreased by 42% in the first half of this year and to Europe country, it's decreased by 30% this year. We estimated that there might be some of the turning points during the Christmas season. Overall speaking, no matter for the pricing mechanisms in the air freight, the sea freight and rail freight, because of these reasons in these 2 sectors. We estimated that there is going to be some of the fluctuations in terms of the demand, and there is not going to be a very huge increase in terms of the demand. But for the turning points that we might going to see in the second half of this year, I'm not going to use the turning point as the precise description towards it.

You have mentioned that the second half of this year, we are going to help us to see a very complicated in our changing situation.

I'm saying that in our report, we have mentioned that we are going to invest ourselves in a high-growth period of the second half of this year. At the same time, we are going to experience the structural adjustment within overall locations of the digital revolution. We are also going to enhance the market supply in capacities and optimizing our operational structure, increasing the operational efficiencies, lower down the cost, providing a stable, highly efficient solutions to our end customers. I am quite confident to our performance in the second half of this year.

Now the question is from [indiscernible].

I have several questions. The first question is about the air freight carriers. It means that we can charter the flight by ourselves. If this means shifting our business, are we asked in 2019 that there is going to be a lower price in the beginning of this year or in March, are we estimating a lower pricing gap? Can we do some of the price arbitrage in terms of the pricing gap? I am only trying to confirm my questions. Second question is that in the first -- January this year, we have signed several different huge customers with tens of millions of the orders. Previously, we believed -- so my question is that are these customers willing to pay us? Sometimes the customer is competing really fiercely in terms of pricing. So I am saying that for these customers who have registered tens of the millions of the revenues, are they going to see a better performance? Are we going to estimate better revenue with these customers? These are my questions.

The first question is about the new types of carriers for the air freight. This is a good question. I'm going to direct this question to Mr. Gao Xiang. Second question is going to be answered by me. Thank you so much for your question. I'm going to take the first question. Actually for the new type of carriers, face -- new type of business facing the changes in the market and new types of the customers, the general logic is that we are going to control the prioritized core interest while providing the one-off solution to the key customers. Just as you have mentioned, starting from the year 2019, we're using all chartered channels, including the chartered airplanes and also other different business models to increase our business capacity. They have also included this part in our report. This has once again testified our company's judgment to the market performance while clients implemented the business sectors in the air freight. This is going to help with the customers and in the future, we are also going to enhance our controlling capacity in this sector. And in terms of the filing date, because we have different judgment towards the markets with different the times of assigning, we signed this contract with the different carriers in the different days, while are also trying to explore the new business co-operational method. That is my answer to your question.

I'm going to take the second question about the contractual logistics. This is a really complicated question. Our customers can be divided into the strategic customers, core customers as well as the newly added tens of millions of the categories of the customers. Putting the new situation, everybody is expecting a lower cost. But what we are providing is not a simple operation and not assembled operations for the logistic infrastructure, we provide the solutions for the logistics solutions. I believe the majority of this newly increased customers is from the Fortune 500 companies. They are holding other note towards the safeties and efficiencies about the supply chain. We are also came up with a higher requirement in terms of the transportation and logistics. This is where the Sinotrans is in. We are creating values for our customers, different with the other competitors. And at the same cost, we can provide diverse solutions to other customers with a stable, more secure supply chain services to the customers.

I have another 2 follow-up questions. The first question is about the railway freight agencies after the Russia-Ukraine conflict. Sino-Euro Railway has been virtually affected by the Russia-Ukraine conflict. Countries like Poland, has closed some of the railway stations, decreasing the [indiscernible] for the final Europe railway transportation, China-Europe freight. So what is your outlook towards Sino-Euro Railway freight?

I'm going to take your questions. Since the breaking of Russia-Ukraine conflict, there is a huge shift between the China-Europe railways. We believe the Western part of the Sino-Euro Railway is accounting to 20% to 30% of our overall performance. Right now, it's only accounting for 10%. With the export, there is this poses some of these questions offsetting the overall performance in the Sino-Euro Railways. The major pressure of the Sino-Euro Railways is from the challenges of the markets. In the previous 3 years, Sino-Euro Railways added in the cost is going to disappear in the future. We should admit that as a part of the reality and trying to increase the efficiency, lower down the cost and making them the competitive advantage of our company. So this is going to be rather helpful in terms of the operational cost of our company. Generally speaking, obviously, the plan for the Sino-Euro Railway is very stable. Generally speaking, the Sino-Euro transportation has kicked double-digit growth since the beginning of this year. This is not because the lacking capacity in terms of the operations. To some of the extent, it is related to being the other sectors, we are still going to keep a close look into the future.

I have another further question. We are going to transport a lot to the Russia railway. What is going to be the freight rate? Is it going to be still very high? I believe this is very accurate description. So I have a final question, for the cross-border business sectors.

Although I believe the terminal to terminal business is going to be the future trend. But in the destination conferences, we're still relying on the local companies to hypos to expand our business. Yes, you have taken at flat rate. We are working with the local agencies and destinational agencies in the local countries.

Have we undertaking some of these clients, including clients from [ Pinduduo ]?

Yes. Yes.

Can you give us some of the informations, including the gross profits? Is it going to be the double digit?

Sorry, we are not going to disclose information in this sector.

We are working together with the finest e-commerce platforms. So could you tell us about the skills of the corporation?

We have so many customers. Let me give you some of the conceptual answers. Mr. Xiang, are you with us online?

Yes. Yes, yes.

Could you give us some of the conceptual answers towards the cross-border e-commerce platforms, daily order.

I think the daily order is at the millions level.

Now the question is directed from [indiscernible]

I'd like to congratulate Sinotrans for a good performance in the first half of this year. I have 2 questions about the air freight. In the first half of this year, we are seeing a downward trend in the air freight. We are creating a historic high record. Could you please give us a briefing about the reasons behind it? Second, we are seeing that although there was a 10% decrease in the air freight pricing, we are still registered a very good performance in the first half of this year. Could you please elaborate the reason behind it?

For the air freight, I think that we have answered some of the similar questions before. Generally speaking, in the first half of this year, although the air freight rate decreased, but this decrease in the pricing is within our expectation. This increase in the overall revenue is closely related to our long-term layout in this sector. No matter in the informationization as well as the overall consumption and the optimization of these sectors. Generally speaking, with a weakening or sluggish performance in the market, the business, the revenue still keeps a growing momentum.

I'm going to take the first question -- the first question, let's talk about our understanding into the first question. With the upgrading of the China industry, you asked, air freight is going to account for a large proportion. That's the reason why we have changed our overall strategies in the market. That's the reason why we have keep surviving resilient momentum in the market, allocating more resources in the market, providing a stable and lower pricing -- lower cost and the overall performance. That's the reason why we have keep a close tie with our strategic customers. And they have provided us a very strong support. Because of the stable services, a lot to new customers has been introduced within our customer -- our market. To some of the extent it boosted our understanding in the market. And that is the 2 reasons behind the growth in terms of the revenue.

Now the question is from [indiscernible]

I have 2 questions. So my question -- the first question is about the divisional profit from the contractual logistics and other factors. So what's the reason behind it? Second question is that what is your take on the profit in the second half of this year and the beginning of the next year. So the second question is about the sea freight.

Let me answer the first question. In beginning of -- in the first half of the year 2023, the company is under a very quick growing momentum. This growing momentum in the railway freight sector is due to our operational capacity. China-Euro Railway has a substation distributed across the country. The profit that we get is not simply coming from the governmental subsidies, it's because of our small allocations of the resources. While we are selling to customers in terms of these overseas suppliers, we are trying to provide 3 dimensional solutions with the air freight, sea freight as well as the railway freight. For those of that goes with the high values, we suggesting the airfreight and for those of these goods with the large volumes, we're suggesting the sea freight. Comparing with other companies, we have advantage in terms of our skills and the services that we provide. In the first half of this year, with the increase of the contractual logistics and the specialized logistics, we are also seeing an increase in terms of the divisional profit. I think I have told the previous remark before. We believe the downward trend in the cost is actually in our expectations. We understand the shape in the overall economy, and they complicated an ever changing international trade business. That's the reason why we have allocated more resulting efforts in this front. From the general performance, in the previous 3 years, the incremental momentum were regular with a slowing pace in these sectors. I believe that moving into the future, the growing pace is not going to be as high as the previous 3 years, but we still keep a very optimistic outlet and our profitability as well as our customer loyalty.

Now the question is coming from [indiscernible]

I have 2 questions. The first question is about the overseas layout. What is your take on the overseas layout? Are there any specific regions that we are quite optimistic about we procured KLG before. The second question is that, the state administrations are the state-owned assets as well as the state contract comfort has put forward the idea that we are going to increase the qualities and volumes of the state-owned enterprises. What is going to be the changes? So are they going to be unachieved for the China merchant group?

So my understanding towards your question is the first line about the overseas layout of our company. The second question is about the development of KLG. The third question is the arrangement from China Merchant group toward Sinotrans, right? Thank you so much for your questions. For the overseas layout, we are seeing 64 different subsidiaries in 42 countries and regions. Moving to the future, these kind of subsidiary division is going to help us with the supply chain, better selling the customers' demand. With the general layout in the Chinese industry, we are going to arrange it. Second, we are also working together with the SAE countries in the regions as well as the Middle East. Time to relocate resources in the emerging markets. At the same time, we are also going to work on the developing countries, and in emerging countries. Allocating more resources in this countries and regions, focusing on these areas in countries and region segment, I think at the very beginning of today's session, Mr. Song has introduced to you about the integrator business of the Sinotrans. I believe our businesses we're also going to bring a lot of opportunities to the Europe market. In the first half of this year, we have kept very good momentum. While the Europe economy was not stabilized in the first half of this year. The third question is about the evaluation mechanisms from China Merchants Group. I believe the parent company as well as the market has a rather reasonable applications, correct the performance of the Sinotrans with a very stable operations and a very good profitability. I believe no matter for our parent companies or the market, we are still going to be very optimistic about our sales. We have increased our dividend per share in the first half of this year, and I believe these kinds of action is definitely going to give more optimistic into the market.

Thank you so much. We have also mentioned the arrangement from China Merchants Group. From the China Merchants Group, they have given us more support. I am really confident that China Merchant Group is going to build Sinotrans as a world-class company in the logistics sector. This is albeit for Sinotrans no matter from the policy part, from the profitability part, from the core part we are going to achieve a high-quality development with the support of China Merchants Group.

In the interest of the time, we are only having the time for the final question. Let's give the floor to the final analysts or investors. Now the question is directed to [indiscernible]

So my question is that against the background of the [ animal ] competing and [indiscernible] market situation in the air freight and rail freight. What is going to be the strategy with the executives?

Could you repeat your question more specifically. Thank you.

Mr. Zhang, could you please give us a more precise description towards your questions.

So my question is about the growing growth post in the e-commerce and the logistics as well as the agency business. I think this is quite a macro policy.

I'm not going to answer the questions divisional side. No matter from the business sectors, the company is promoting an overall digital revolution in the company. From the presentations of our organization, from the structures of our business, we are going to be enhancing our capacity to deal with these situations and increasing our competitiveness in these sectors and delivered more processes to the customers. This is a very important way to increase our core competitiveness as well as our future business. Second, in terms of the resources allocation, although the market was not very optimistic currently, we are also under a huge pressure, but in these situations, in terms of this result with allocation, we are going to enhance our capacity. For the 2 regions, we are going to allocate more resources. Second, third and the foremost, we are going to enhance our ties with the strategic partners and specific customers. Not only maintaining them in a very traditional rate, but we are also going to work with our customers in building a resilient supply chain. That means to say, no matter for the strategic business sectors or the contractual business sector, it is aligned with our expectations to the future. At the same time, starting from last year and up until now and moving into the future, we are not only going to -- we are going to keep honing our product portfolio in order to make sure the mainstream business as well as the 5 business are going to keep our growth in momentum.

No further questions from my side.

So here, we conclude the 2023 interim results announcement with Sinotrans. Thank you so much for the time and participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]