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

Investors, media friends, good morning. Welcome to Sinotrans Limited 2023 Annual Results Announcement. I am [ Han Chin ] from General Manager's Office. I will be the moderator for today. In today's presentation, we will have both on-site and online sessions. So for those investors over the line, I would like to express my warmest welcome. Now I would like to introduce to you our management in attendance. They are Executive Director, General Manager, Mr. Song Rong; Financial Controller or Mr. CFO, Mr. Wang Jiuyun; Deputy General Manager, Mr. Li Shichu, and also Secretary to the Board; Deputy General Manager, Mr. Gao Xiang, also Chief Digital Officer. In this announcement, we are honored to have Mr. Song to attend this session online as well. Welcome. On 22nd March, after close of stock market, we have already announced full year annual results. The PPT has also been sent to you via e-mail. In today's announcement, Mr. Song Rong will give an overview of the company's results, followed by a Q&A session. In today's announcement, we have arranged simultaneous interpretation. English-speaking participants can make use of the online English channel to listen to simultaneous interpretation. So now let me pass the floor to Mr. Song.

Ladies and gentlemen, capital market, all the new friends, good morning. I'm very happy. This is an annual meeting with all of you. On behalf of Sinotrans management, I would like to welcome you all. Thank you for your attendance. Last Friday, after the close of market, we had already announced our 2023 annual results. You can see that in the past 1 year, macro economy has been fluctuating, and there are different challenges and difficulties, all added up together. In face of very complicated internal and external situation, we adhered to progress amidst stability. Full year revenue is still showing a scale of CNY 100 billion. Net profit was up 3.5 percentage points at CNY 4.22 billion, historical high level. I believe that this number has exceeded market expectations. And then if you look at the logistics market, looking at all the data, for sea freight, market supply and in 2023, newly built container supply has reached 2.22 million TEU [indiscernible] on the demand side because of the foreign currency pressure, while there is still pressure in the Chinese market situation. So there is still more supply than demand in the sea freight market. In 2023, exports, container freight or China Containerized Freight Index, CCFI, for the whole year was really at a low level. At the end of the year, the Red Sea region saw more shocks and volatility. So there was an increase. Overall speaking, international freight rates, especially for China export containerized freight, there is still not a strong enough support. Now let's take a look at airfreight, air cargo. On the supply side, whole full year air cargo capacity was up 11.3% for the whole year. Comparing with 2019, before the pandemic, it is 2.5 percentage points higher. On the demand side last year, global air cargo demand was down 1.9 percentage points year-on-year. Comparing with 2019, is still at 3.6 percentage points. Last year, in Q4, airfreight demand went up, but this is just a short-term pickup. Right now, it has gone back to the normal level. And then in terms of freight rate, according to our internal export trade rate data in 2023, airfreight [indiscernible]. The average freight rate was down 27% year-on-year. For American lines, down 34%. Intra-Asia was down 24%. So when [indiscernible] comes down and freight rates comes down, it is a very severe situation. Sinotrans adhered to turning market inventory to our growth, to our equipment, so as to improve our business structure and enhance our resilience. Revenue for the whole year was RMB 101.7 billion, net profit attributable to shareholders, CNY 4.22 billion. At the same time, we took the initiative to optimize our debt structure. Debt-to-asset ratio, comparing with the beginning of the year last year, was down 5.8 percentage points. Our company also adhered or attached importance to return to shareholders. In 2023, for the whole year, we declared a dividend of $0.19 per share, including interim and also final dividend. And dividend payout reached 50.4%. This is also highest point in our history. Now I would like to review our last year's work. In 2024, we turned market stock to our increment, and we strengthened strategic marketing. Our customer structure continued to improve. On one hand, we started strategic marketing. Revenue contribution was over CNY 5 million. These are core customers. Their share maintains at 40-plus percent. On the other hand, we also focused on strategic customers to build a resilient global supply chain. So we organized SOE customers, new energy vehicles, green energy and medical and health for dedicated task forces with many electronic appliance customers, especially the top clients, we build resilient global supply chain together. So from China all the way to Hungary, covering Middle East and East Europe, there are 21 countries covered in the Air Silk Road. Together with electronics, and also new energy and home appliance customers, we established a GTM, that is Global Trade Management Solutions pilot scheme. For manufacturing industry, brand overseas development, we are giving all the necessary support. Last year, we also did a lot to help the internal and external circulation. So we consolidate resources for Yangtze River container transportation. So we became the largest public container large transportation carrier in the Yangtze River, and we stepped up synergy. So we have built a Yangtze River system and also the coastal feeder line integrated T-shaped domestic shipping channel system. And therefore, airfreight, we continue to advance the construction of new carrier system. We actively deployed freight capacities for routes to Latin America, Middle East and Central and Eastern Europe. We operate 11 routes international charter routes every week. There are around 33 flights. And then for trucking, well, right now, our market share is 18% in Middle -- Europe and so on. We established a multi-link system. And for SDCC platform, trucking management platform, it accumulated a freight capacity of 240,000 vehicles. We constructed a 3-tier network covering national trunk lines, regional distribution lines and urban distribution lines. In 2023, we optimized our network and focused on high-quality development. So in Hong Kong, we successfully launched distinctive logistics products such as Hong Kong Speed Express and Hong Kong Express Link and also that's for the GBA as well. for Southeast Asia, we started a new warehouse construction in Thailand for the Southern states. And in Singapore, Vietnam, Malaysia, we continued opening city and regional branches. For the Middle East and Latin America, we started the operation of China Pavilion project in the Dubai Expo. And also the Dubai South Free Zone Logistics Center project. We opened chartered routes between Hong Kong and Chile and Mexico. Then for consolidating our development in Europe, we launched or we established a subsidiary in Hungary. And in the Netherlands, we added 90,000 square meters of new operation sites. Last year, we introduced comprehensive digital transformation. So there are technological innovations that we have been doing for customers, products, delivery, resources. This is the 4-tier system. We established a transformative organization featuring cross-border penetration, and we implemented digital transformation. And then for customer system building, we wanted to strengthen our customer. And so in some subsidiary companies and also our strategic partners, we launched the CRM system. And then for technological innovation, we accumulated over 190 patents and 350 software use -- right of use. This is 354 software copyrights. And we also had autonomous driving mileage accumulated up to 1.15 million kilometers, maintaining the leading position in the industry. At the same time, we created Green Logistics Solutions. We published the Green Logistics white paper, and we took out in the first public carbon calculator for the logistics industry in China. Together with our strategic customers, we built the first domestic airfreight transport end-to-end carbon-neutrality project based on global SAF, and we also started the first zero-carbon logistics park. Now let me take a look at our overall segment results. For Logistics segment last year, our profit performed well. Revenue was CNY 27.5 billion. Segment profit was up 15% at CNY 1 billion. Contract Logistics revenue, CNY 21 billion, up 4%. Profit, 732 -- actually CNY 824 million. So we are up 12.67%. We enhanced the expense control for Project Logistics. Profit was up almost 40% at CNY 140 million. In 2023, for forwarding business segment, revenue was -- segment profit was CNY 2.3 billion. So when freight rates came down significantly, our business revenue is slightly down through extended business service chain and also refined management and operation as a result of sea freight forwarding in the market still achieved 2.7% business volume. Segment profit up 9%. airfreight forwarding. Globally speaking, the [indiscernible] came down and business volume was up 15.5%. Freight rates came down, profits and -- revenue and segment profit both came down. However, they are still much better than the average level in the industry. Railway freight forwarding, business volume, revenue and segment profits all went up. E-commerce business. Basically, the revenue and profit source is mainly cause for the e-commerce business. Last year, because air cargo freight rates came down, so this segment revenue was down 19%. However, because our company put in place the new carrier business model, as a result, business volume and segment profit, both achieved [indiscernible]. This refers the external environment is very complicated and uncertain. And in 2024, global economy will show the slow growth and high sensitivity and also volatile changes. The logistics business is in a transformation breakthrough stage. On one hand, there is pressure in the industry. On the other hand, the industry itself is improving itself significantly. In 2024, we will continue to achieve the ability progress amidst stability. So we will implement digital transformation with full force in order to achieve business upgrading. The following areas are our key tasks for 2024: first, we'll focus one main stream and make solid progress in comprehensive digital transformation. So we will focus on our key tasks to complete the upper layer design of digital transformation. Through digital transformation, we hope to reshape our operations and deepen organizational transformation. Two, focus on one core and expand the market share. So we will enhance our customers and strengthen CRM systems. We will build products and pricing management system. Three, forge one business model to lead the development of product channels through New Carrier model. So we hope that there will be different [ horizontal ] connections being strengthened, and we will also build demonstration zones. We will look into enterprise or corporate development innovation model. We will expand market share and build strategic marketing system. We will focus on global resilient supply chain and build green solutions. And there will be joint innovation of internal circulation and so on, there will be 4 main strategies. We'll make use of digital tools to enhance our quality of delivery. At the same time, with customers, we will reshape what the supply chain needs. And that is the global end-to-end supply and green logistics supply system. We'll enhance our strong end-to-end delivery capability so that there will be industry grade solutions. We will forge one business model. That is with the New Carrier model, we will develop product channels for sea freight. On trunk line, we will enhance strategic cooperation with main shipping lines in Southeast Asia and Europe on main lines. We'll enhance our control of trunk line capacity. On the 2 ends, we will step up cooperation with major ports. To advance building concentration and dispatch system, we will cooperate more with Inner Mongolia companies so that the Inland system and so on will be incorporated into our strategic management. For airfreight, we will strengthen strategic cooperation with main companies. For Trunk line, we will be in Southeast Asia, Southeast America, Middle East and also Central and Eastern Europe. And on both ends, we are focused on Hangzhou, Shenzhen, Hong Kong and other domestic bases and overseas important notes so that there will be effective system, effective concentration and dispatch system. We want to make sure that we are leading in Asia in airfreight. So we will reinforce our market share. At the same time, we'll improve our effectiveness and efficiency and build a standard product system, increase our investment into airfreight resources and also land trade. For trucking, we will achieve increase in scale and management of capacity and realize cost reduction and efficiency improvement so as to improve efficiency and lower cost. For resource allocation within China, we will seek our weaker link and achieve improvement. Overseas, we will improve delivery capacity in Europe. Number four, we will establish a solid foundation and implement effective measures for quality and efficiency enhancement. We will make sure that we will get efficiency from management and profit from costs. So we will make use of core capacity resources centralizing on purchasing intensive procurement and lean operations. Five, emphasize one driving force and expand horizon of technological innovation. We'll explore a new AI Plus logistics model. With top strategic customers, we will do joint innovation so that there will be a smart logistic service capability. We'll create sustainable green and low-carbon pioneer projects. We'll continue to participate in national standard setting and shipping standard setting. And improve the application of carbon calculators and international certifications, making sure that we will be in leading position. This year, the recovery of the market is still not stable. In some industries, there is spare capacity, surplus capacity. So there are still quite a lot of uncertain risk factors. And for international circulation, there are also disruptions, risks and challenges. In face of more difficult environment, we will be resolute in facing up to changes and challenges so that we will compete on our strengths to achieve our annual target. With higher quality development, we can then pay back to investors. That's all in my presentation. I hope to continue to get your interest and support. Thank you very much.

Thank you, Mr. Song. Now we will proceed to Q&A. We will invite investors here to ask questions. And later on, we will open the floor for online questions. [Operator Instructions] Now let's invite the first question. The gentleman in suit on the first row.

I am from CICC. I am Zeng, Jingke. Congratulations on your 2023 satisfactory results. Overall speaking, there is a lot of pressure in the environment, but you still showed a lot of resilience in your results. My first question is for forwarding business. Now looking at the various business segments like sea, shipping agency, air channel, profit margin is rising. Revenue did not grow too much, but profits grew quite well. So my question is, what are the reasons for the increase in profit margin? You mentioned the extended service line. Can you give an example? That is my first question. Second question is related to the first question. In my understanding for forwarding business, profit should include logistics subsidy. But in your annual report, the financial subsidy has increased quite a lot year-on-year. What is the reason? And what about sustainability of it?

Thank you. Let me take this question. Just now you asked a question about increase in our profit margin for our forwarding business. As said in our presentation, in our core businesses, all along, we have been increasing our core competitiveness. So we are moving to a single business to multiple business areas, which has grown a lot. And with digital transformation, we are moving towards full supply chain. So in the past, we offered one service to customers. Now we offer multiple services. So for air and sea forwarding, when you look at our costs, there will be a big increase in profit as a result. There is another reason, and that is about technology. When we calculate our profit margin, sea freight rates and airfreight rates are included. Last year, sea freight and airfreight rates came down significantly. So as a result, our profit margin increased because of this technical reason. Now because of these 2 reasons, we can see our overall profit margin last year increased to a certain extent. And this year, we will focus on improving our operating quality. So we offer to customers full supply chain service. And this will account for a bigger share. At the same time, we will also control our internal costs and also supplier procurement costs, then we can improve our operating capability and profitability. Through these methods, we hope to maintain stable profit margin. And then regarding government subsidies, there are different reasons behind it. Looking at our results, you can see that we have quite a lot of government subsidies, for example, for air charter freight and also shipping line subsidies. While this market has very transparency, a lot of our subsidies are given to our customers, not only for ourselves. So for this subsidy, right now, there is still some policy continuation. At least in Q1, we see policy continuity. For government subsidy for shipping operators, on charter flight operators, there is higher and higher requirements for subsidy where we have to meet some requirements in terms of quantity at the same time, overall quality requirements have to be satisfied. There are quite many requirements from the government. So through our asset, we will satisfy customers' needs. At the same time, we will enhance our core competitiveness, and we will improve our capabilities. At the same time, we need to satisfy local government's requirements, then we can get a relatively stable government subsidy. Looking at present, government subsidy policy has not changed much, okay?

Okay. Next, let us invite the next question. The one on the third row.

[indiscernible] 50% be the new baseline. The second question is on the cross-border e-commerce from China. There's been a lot of buzz about e-commerce volumes moving from China to the rest of the world, particularly the U.S. and Europe. How is your air forwarding business? Likewise, how is your DHL joint venture positioned to capture this new trend?

Okay. Thank you for your question.

[Foreign Language] Thank you, investor. From listing in 2023, we have been maintaining a stable policy on dividend. So above 30%. But this year, our cash flow and operations are good, starting from 2021, 36%; 2022, 40%. This year, our business results achieved new high. Cash flow is quite good. So that's why dividend payout exceeded 50%. This investor asked whether there will be some medium to long-term dividend arrangement we are considering? Various regulators have been asking listed companies to put in place stable dividend policy. This is also a requirement from investors. So based on our company's operations and funding position, we will make a decision on that. We will consider and present our medium to long-term dividend policy in due course. Thank you. Now let me answer the second question about cross-border e-commerce. So -- and its impact on our airfreight business. In the past few years, for China's cross-border e-commerce development, well, you can see it quite clearly. For our airfreight business, well, we benefited from this development, and it has increased our balance. So this is the situation in the past few years, we still achieved a growth. However, the growth rate is not as fast as the past few years. Besides, there are other factors impacting international freight. And cross-border e-commerce has also [indiscernible] in terms of enhancing quality. So cross-border e-commerce is a low-listed growth from business. Apart from cross-border e-commerce, we also have [indiscernible] international customers. So for air cargo business [indiscernible] we already emphasize a lot on our other business models, including business with our [indiscernible] and also the business growth from that. So I think in the future, that will lead to even bigger growth.

Next, let me invite the next question. [indiscernible] those on the telephone line.

[indiscernible]. Congratulations on your very good results. Your results exceeded expectations. So significant improvement after deducting investments. So I have a question on DHL JV. Now reading from DHL's report, well, the profit from JV may be different from yours, but this is because of the accounting standards. In euro terms, it is down 26%. But on your report, it's down 6%. So there may be some discrepancies in accounting standards. So can you explain the situation about this DHL JV? What are the differences in accounting approaches? Well, investors will first report. So it is rather confusing. Another point is, just now, the management said that we have a Thailand warehouse and also a Vietnam operation base and some overseas layouts. So in your future CapEx plan, what will be the split between domestic and overseas? And for the overseas warehouses, are they on long-term lease? Or will that be planned on M&A?

I'm sorry, sorry. Thanks. Thank you for your questions. Let me answer your 2 questions. [indiscernible] DHL that disclosed some data which are quite different from our disclosure now. [indiscernible] discrepancy, every year, there will be this discrepancy every year. The company [indiscernible] disclose information on [indiscernible] manner. But this year, the disclosure is more detailed. Every year, there are variances. Well, at this time, [indiscernible] in the 2023 data [indiscernible]. So [indiscernible] is rather big. There are 2 factors behind that. In the disclosure, they are referring euro denomination. For us this is different, so it is in RMB term. So this slide rather show discrepancy. [indiscernible] denominated items. So last year, we will again [indiscernible] appreciated a lot, from the beginning of the year to end of the year is almost 6%. So euro against RMB, there is an appreciation by 8%. Because of this exchange rate fluctuation, there is big discrepancy in our disclosure. The second reason are differences in terms of the dimension. So for example, when they confirm or recognized revenue, the revenue was down like 1%, 2% for us, where last year business volume increased 40%. [indiscernible] was also up. [indiscernible] 9%. I don't know [indiscernible] In 2023 [indiscernible] disclosure differences [indiscernible] the and discrepancy. Actually, things are affected because of the data have been audited by the auditors of both companies. So we will discuss [indiscernible] reduce the discrepancies so that we can avoid causing confusion to investors when they read the report. The next question is about CapEx. In these few years, every year, there is around CNY 2 billion. Last year is more, CNY 2.57 billion, basically in infrastructure and in some small M&A projects. In the future, we will focus on new model as new carrier. At the same time, we will ensure security of the 5G [indiscernible] with future working partners, and we want to make sure that we can have a full connected corridor. So in Yangtze River, Delta [indiscernible] and so on. An important logistic note [indiscernible] to ensure security of supply chain [indiscernible]. Thank you.

[indiscernible] your second question. I know that you are interested [indiscernible] overseas asset allocation for long lease and so on. I did not hear you very clearly. What is your main point, please?

I want to know about overseas warehouse and also other notes. Do you buy them or rent them? And so financing, recently, there is exchange rate fluctuations that may impact your results. So in terms of CapEx for overseas, what are your financing markets? Do you use foreign currencies like euro and USD for financing? Or are you going to make use of long-term lease or any other way of procurement?

Okay. For overseas, for our asset allocation, overseas asset allocation is very different from domestic asset allocation. When we allocate assets, we will consider various factors. For example, geopolitics, regional economic development trends. And for overseas asset allocation, we have to consider the relationship between the resources and our domestic business. So if we need heavy asset allocation, then we will do it to a certain extent overseas. But then this is not the only choice. If you look at our business in European region, our infrastructure is on long-term lease. We will consider its cost and also our convenience and flexibility, especially security. [indiscernible] currency exchange rates fluctuate significantly. So in these 2 to 3 years, looking at our offshore investment, we will also consider the cost of funds and also exchange rate management. Right now, the situation is quite good. In the future, we will consider different currencies, exchange rate management. That will be our main management tool for our investment.

Over the phone, can you please try your best to speak more slowly so that our management can understand you well? Next question, Huatai Securities, Lin, Shan, please.

Management, I'm Lin, Shan from Huatai Securities. Congratulations on your excellent results and discipline for 2023. Two questions. First question, in 2024, [indiscernible] can you share with us from the beginning of the year [indiscernible] business segments, what is market demand and how is your operation? The whole 2024, what do you think? My second question is about freight forwarding. Just now you said because of the Red Sea incident, free freight rate came down quite a lot year-on-year. So how should we look at this rise in new freight rates and its impact on your profit from freight forwarding business?

I will answer your second question first. For Q1, revenue, starting from second half of last year because of the Red Sea incident, there is sea freight rate increase as a result. Overall speaking, demand and supply has not changed in this market. So price fluctuations in certain stage may lead to short-term impact on revenue and profit. But for medium to long term, it will go back to the overall demand and supply relationship. So overall speaking for sea freight forwarding, because overall freight rates went up, there will be contribution to our revenue. For profit, there is both negative and positive side. And so warehouses because of time difference, there will be some gain. But in the long run, [indiscernible] cost may let behind, and so there may be cost increase. So right now, I cannot really come to a clear judgment. Looking at the whole 2024 outlook, I think we have to be very cautious and prudent. Q1 data are quite good. China's GDP is -- for this year, I think the growth will be above 5%. [indiscernible] in January and February overall. So airfreight, sea freight and railway [indiscernible] to a large extent, it is because of international or geopolitical risk still bigger. So there is an increase on the consumer in freight rates. And we have to slow it and see. In Mr. Song's presentation, it is already reported that this year, for overall China's economy, we are relatively optimistic. We believe that when macro fundamentals improve, our overall logistics business will benefit. This year, with some rationale policies and also with improvement in supply chain resilience, I think there will be some favorable policies, and we will seize the opportunities. We will do more to improve our operating quality. And also, we will have business transformation. As such as now, we will shift from single service to multiple service. And then with the economies of scale, we will be able to improve our effectiveness and results. Overall speaking, we will improve our business operation capability in order to withstand market fluctuations. I think that is more meaningful. And in this way, we can create more value for the investors. Thank you.

Let's take the next question. [indiscernible]

Management, I'm from [indiscernible] Securities, [indiscernible]. Congratulations on your very good results in 2023. I have 2 questions. First question. For sea freight forwarding business, we can see that in your annual report, you said that you will deepen cooperation with internal trade companies. So for internal and external trade, what is the increase in business volume for sea freight forwarding? For professional logistics in 2023, profit quality continues to improve. Segment profit growth rate is much faster than revenue performance. So operating quality is also improving. In the future for professional logistics, how is your profitability? What will be your net profit level? In the future, do you think there will be a sustainable growth?

Your first question is about our domestic trade, internal trade, sea freight forwarding business. When China economy continues to transform, the dual calculation continues to deepen, and we also see the opportunities in our country's logistics model transformation. Our country talked about our core development models in terms of railway and sea freight, and we also optimized our supply chain structure. We also imposed a number of new requirements. So last year, with our internal trade shipping companies, we stepped up collaboration. In terms of business volume last year, internal trade order has gone up double digits. With core shipping companies or internal trade companies, business volume grew more than 50%. So growth is quite fast. Then follows sea freight. Internal trade still accounts for not more than 10% in terms of the order, space orders. Okay. Let me explain for the second question. On contract logistics and professional logistics, in the past 2 to 3 years internally, we did a very in-depth resource consolidation, including tangible logistics infrastructure. So for professional logistics, we did quite a lot of optimization and transformation. Looking at our operations, in the past 2 to 3 years, our contract logistics growth, scale growth and also efficiency improvement, they are all quite obvious and significant. This is because of our organizational transformation and also our operations improvement. On the front end, customer structure has also changed a lot. Just now, a number of institutional investors asked questions about our traditional business and our air cargo business, e-commerce business. Now you are all experts. Institutional investors can look at 4 dimensions. In my presentation, I said that this year, we have one core or one mainframe that is digital transformation. We have already introduced around the digital transformation for 2 years. For Sinotrans, no matter whether we're talking about our traditional business, our new business or future businesses that we are building, our main logic is on 4 major dimensions: Customer, products, resources and delivery. So we continue to optimize our customer structure. At the same time, we are building our product and product system in a faster way, besides we strengthen our top layer design in the head office. So resource allocation capability between logistics and also our other areas. Besides we have to adopt effective ways to improve our delivery capability. So then if you analyze these 4 things, in whatever business line or area, no matter whether we're talking about scale, growth and efficiency improvement, you will be able to find the answer. Now back to professional logistics and contract logistics. The question asked is a good one. Last year, our performance was quite good. But from Q3 to Q4 last year, we already noticed that there were some not quite pleasant phenomena that is scale growth slowed down. We realized that in Q4 -- Q3, Q4 last year and looking at our working partners, there is more and more pressure being passed on to us, especially in terms of cost. We can feel that even though we are talking about top customers -- companies, they have high cost pressure. In the past 2 to 3 years, the situation is different. People paid more attention to safety, security and timeliness. So as long as we can complete more in time and we're good. But then starting last year, Q3 cost pressure was very high. And so that cost pressure also was passed to us. Secondly, in China, logistics infrastructure as we focused gradual earnings increase, these are the companies working or interested parties unlike these. So concerning like a cent or monetization from the market, there are many substances as a redundant resources and as a result on price continues to come down. This year, in terms of contract logistics and professional logistics, pressure was bigger than last year. This is one objective reality. But we still have confidence with our high model quality and effectiveness improvement last year on November 11, we already started such work. So all costs are controllable. We want to improve our management and constant profits. So before basic logical dimension that I mentioned, we would like to do more optimization. And then the technological innovation represents a lot of opportunities to us. Today, in our report, we set forth a lot on technological innovation and green logistics. For Sinotrans, we are not a top company in China logistics. And this is a development direction that we will adhere to. It is also our opportunity. That's all from me for the time being.

Thank you, Mr. Song, and thank you, Mr. Gao. Operator, can you please give instructions for Q&A?

[Operator Instructions] [ John Yang ] please.

I am [ John Yang from PE ]. Congratulations on your excellent 2023 results. I have 2 questions. First, for your direct customers, how big is the share? For direct customers and indirect customers, do they differ a lot in terms of profit margin? Now when China manufacturing industry is going overseas, they have a lot of overseas logistics demand. So when it comes to contract logistics, did you follow these customers overseas to offer overseas services to them? If yes, then how big is the scale?

Let me take your second question first. Now for contract logistics, basically in all our overseas regions, it has become our main business in those places. Many years ago, it's different. In Southeast Asia, in Middle East, Europe, Asia region, that was our main business for overseas development. Besides for top companies in China, for third-party logistics, contract logistics and related supply chain needs, we're offering very effective and safe and stable service and solutions. As regards the exact share, let's take a look at whether we can give you a number, but the share is rising gradually. In other countries, if you see Sinotrans facilities or operations, no matter whether we're talking about our infrastructure and professional operating teams, while we do not only serve Chinese top customers, we also serve Fortune 500 MNCs that are using our overseas services as well. And the second question is about the split between direct and indirect customers.

Yes. Thank you. For direct customers, in these few years, as Mr. Song said, he talked about our overall transformation. And the first thing is customers. So on customer level, if you look at our strategic marketing and operation systems, they are to satisfy customers' needs, we have done a lot. In the past few years, direct customers account for higher shares, 40%, in terms of scale, but the exact number is 43%. This is closely related with our other performances. If you look at our sea freight profit margin, it is rising. And when direct customer accounts for bigger share then our multiple service business can also go up. So I think this is related to our operation transformation and customers.

[ Hu Sheng Yen ]. Mr. [ Hu Sheng Yen ] please.

I'm [ Hu Sheng Yen ]. So I have only one question for the management. Just now some investors asked a question about direct customers. For sea freight forwarding, profit went up 6%. In the future, for sea freight forwarding, on financial terms, can you separate direct customers and traditional customers? Or another option is for sea freight forwarding in the future, when direct customers account for higher share, regarding your profit margin in sea freight forwarding, how much would it be?

Let me repeat. In the future, for sea freight forwarding business and whether or not we can separate direct customers and other types of customers in our disclosure. Well, is that your question, please?

Yes, yes, yes. Profit margin and also the way of disclosure.

For the first point, for our company, we will definitely continue to increase profit from direct customers. In the future, when the economy is uncertain, direct customer strategy is definitely a way to maintain growth and get profits. And we are different from other logistic companies. We have network and we have overall capabilities. That is our strength and environment. So for China manufacturing and other companies' transformation with our digital transformation and operation transformation, our overall service capability can improve. So this can satisfy the needs of these Chinese enterprises when they go abroad. And also when channel and consumption pattern changes, what they will also adjust the supply chain. So I think this is really necessary. Given this environment, direct customers in the future will still be the area that we are most concerned about. And then for sea freight profit margin, this is rather complicated. This involves freight rate fluctuations of volatility. Now when we offer more and more services, freight rates will lead to more disturbance to profit margins. So we will look at the overall consolidated number that will be more scientific. We should not only look at one profit margin number to assess the health of our business. And then when it comes to the way of disclosure, internally, we have been making adjustments to our own operation. So are we going to change our disclosure? It's difficult for me to comment. Many supplement regarding our customer structure. Well, internally, we will separate or divide customers into direct customers and channel customers or indirect customers. And then we also have shipping companies customers. We have around [ 50,000 ] of customers. If we open up all these customers and based on one basic standard to define customers, then there will be a lot of different categories. Direct customers and channel customers will be the biggest categorization. Now in the past few years, I think you are aware that our direct customers account for a higher share and this increase is faster and faster. Strategic customers and core customers, according to our definition, are actually top customers and their share is also rising fast, but we cannot say that the higher the share of direct customers, then there will be more benefits from them. Well, to a certain point, that will be a balance, and this time point would be dynamic. Just take a look at single points or within a certain range, that profit margin may be higher. But for China customers, if our capital turnover, that is our resource allocation to China customers it is more scientific and reasonable. Then their contribution to our company is also very big. So I cannot say that the higher the share of the customers, the bigger, the contribution would be to our profitability. It is dynamic. The overall customer structure is very complicated. In my report, I said that we are working on CRM system and we are more detailed in our categorization, evaluation and analysis of our huge customer base. So for decision-making asset allocation, we would like to find some basis on that analysis. So it is going to be dynamic. Thank you.

The gentleman on the first row, please.

I'm [ Chong Huang ]. Two questions from me. First, regarding risk. Last year, from your announcement all now, which has been a long time, but we have not seen more progress. So that's my first question. I would like to know your progress. For DP risk, is it possible to have it done this year so that heavy assets will be excluded? And then for equity incentives, in the first batch, altogether, 10%, right? But in the first page, you did -- after the stock incentive performance has been good. So we would like to know in the future, whether there will be a longer incentive period for other companies like China Merchants they have already completed that work. So once every other year, they will do this kind of stock incentives and so on. So I would also like to know your position.

Let me take your first question about REIT issuance. Last year, we announced the REIT-related work that includes 6 asset projects. At the end of last year, we have achieved some progress. We have already filed some papers with NDIC and with the CSRC and also Shanghai Stock Exchange, we have communicated. Shanghai Stock Exchange supported our work starting second half last year for leasing and not doing quite good. Besides given the market environment, there are also some new happenings. So CSRC had given some approvals earlier, but those have not been issued yet. So there are some impacts on risk issuance. From our point of view, we will continue to push for it. We have to complete all the procedures. And when the market is better, we will seize the opportunity to issue, right.

Thank you very much. For equity incentives, you made a clear point. This is the first stage, accounting for 1% only. During AGM, we set no more than 10%. In the future, we will follow the actual circumstances of the company. For medium to senior executives, we will also offer incentives. I think looking at the first stage, result has been quite good this year. For the first batch, well, there will be a -- first batch exercising of the option, there will be 2 batches. And I think we have seen unprecedented increase in our stock price from medium to senior executives and also shareholders' interest. For the first time, we are able to under up all their interest. So this is beneficial to our future, benefit maximization. I think it is a very good incentive method and also a good way to manage our market cap. So we will gradually make subsequent arrangements for REITs.

Yes. As I said, I am also concerned about it starting last year. Actually, when it comes to our goals and targets, that is important as well. There are many challenges, but please rest assured. In terms of our overall asset optimization, it is not only about REITs. We have other considerations as well. So in terms of asset allocation, it is part of it.

Do we have other questions from investors here? The one on the third row.

Management, I'm from Guangfa Securities. Congratulations on your 2023 results. I have a question. I want to follow up on a question asked by the HSBC investor for DHL, for your plan about your cooperation with DHL. When it comes to cross-border e-commerce opportunities in the future, when they bring in aircraft and also logistics layout, is there other mode and will that be other considerations in your cooperation with them?

I did not hear the HSBC investor question very clearly. So you are concerned about the DHL plan? Well, I cannot comment on behalf of DHL. Last year, when it comes to interaction with senior management of DHL, communication with DHL management and also senior level communication last year, there were very frequent communications. They came over 2 times. They visited us 2 times. With DHL Express, we have working teams together. In the future, we are looking into future collaboration. So on top of the existing DHL Sinotrans business, there may be the chance of further cooperation. For sharing of resources, sharing of logistic resources that we're assuming are ready for airfreight, DHL has its own freighters. So do we have the chance? We are looking into it. For Sinotrans, for airfreight, freighter business, our business is different from DHL, but we do have the opportunities. But in international air cargo business in China and in pan-Asia, well, it is a market with stronger external trade. So there are chances that we can do all together, but we are doing some studies. At the same time, just now in my report for some core lines overseas and also in China, we will look at charter flights and also network. It's not only about strong routes, we will also build hub internationally and domestically we will meet -- very soon, we will see more information. Thank you.

Now we will pass the floor to investors online.

From [indiscernible] investment.

I'm [indiscernible]. I have 2 questions for the management. First, last year, you said that you implemented digital transformation. How was your progress so far? Second question, last year, your take out in an on-site visit and inspection. So in terms of technological R&D and innovation, what progress have you made? What about future direction of development?

For our digital transformation in Mr. Song's presentation, he emphasized digital transformation and its importance for future development. Digital transformation is to ensure our future growth and operation efficiency. So in our plan, it is different from other companies. We look from technology's point of view. For other companies, we look at business and operation and our organization. Given the overall industrial background, there are 2 major characteristics. First, for our own brand, as manufacturing and also external trade companies, in the past, we exported our products and then our brand. So we sold our products to other markets. Our supply chain, service, channel and systems, they are now exported overseas as well. Many manufacturing companies set up factories overseas. And they have much different demand in terms of logistics in the plant -- in the past, the demand was with the buyers. But now for brand manufacturers, they have need to control supply chain. When we think that there are opportunities for logistics industry, when these brand companies go overseas, there will be more collaboration. In the past, people paid more interest in domestic. Now they pay attention to domestic as well as international truck routes. So that's why we have more opportunities to offer different types of services. Domestically, because of our consumption and consumption channels and also different user experience, in the past, things are more fragmented. Supply chain management has changed a lot for these domestic companies. Then our company has the chance to strengthen our integrated operation system. So when it comes to our digital transformation, we want to reshape our business and our operation and then optimize organization and then there will be technological empowerment. For customer relationship, logistics resources, our delivery system, the 4 points mentioned by Mr. Song will be enhanced. In the past 2 to 3 years, we spent on digital transformation. Our operation system has changed a lot. In the past, we focused on lines, for example, freight forwarding, contract logistics, but now we focus on overall customer needs. And then we do asset allocation, procurement, operation system and delivery. We did innovation and transformation on these with much effort. And then for customer system, you are concerned about our customer strategies as well. Looking at recent years' performance, you will be able to notice the advantages. Our CRM system has enabled us to better gross business with customers. We have more insights about customer needs. So in terms of procurement and asset allocation, we can be more forward looking. These are things that we have done in the past. For objective of transformation, we would like to achieve business transformation in the past short change, in the future long delivery. In the past, we focused in the domestic, but now domestic plus overseas. So looking at our operation performance, you will see the outcome and highlights of our digital transformation. This year, we'll continue to do transformation with customer system. And on product terms and also on our pricing, quotation system and resource, we will have full network transformation, and we'll make use of information systems. This year and the coming 1 to 2 years, we can enhance our operating capability. Your second question is about technology and also use of technology outcomes. We will continue to have scenario plus technology and customer plus technology transformation. Looking at the growth directions. Right now, we already implemented for scenario, technology and automation in warehouse and transport and other related services. Our automation ratio is rising year after year. Our innovation achieved 3 strategies. First, we expand the use of technology outcomes in different business scenarios, and we are making forward-looking layout with our technology. Reading from our annual report, for example, with autonomous driving, our stocktake within warehouses, our automated equipment, we are increasing the use of these. Just now, the investor said she had taken part in our interaction. So for front-end moves, we are looking at AI plus logistics. For example, compliance use to other areas, we are using more and more AI, in this way our production efficiency can be enhanced. Another thing is joint innovation with customers. Logistics enterprise and also customers, logistics department will need to collaborate. And in the past 2 years, it has been greatly enhanced. We have joined GTM with customers. So when Chinese companies go overseas, there will be the need for many complicated compliance systems. So with many strategic customers, our systems are all connected already. In terms of order management, tracking and delivery systems, quality and efficiency have improved. And green is another area, as we mentioned in our report. Last year, for green development, we took out in countries and logistics industries, greenhouse gas emission standards. For carbon, not only for ourselves but also for our customers, we have done a lot of work in carbon management for instance carbon calculator and energy solutions, digital solutions, supply chain solutions. These are also used in our customers already. We have the first zero carbon part and that interaction section took place there. Last year, international CDP was announced in relation to carbon capability disclosure. So we are among the leading companies in China on that front. Then for new business models, we are also making forward-looking moves for logistic e-commerce. In the past few years, there is big growth last year. Revenue and profit both increased significantly. We face some of the changes in domestic supply chain, including long delivery. So 3PL, 4PL business scale increased. Logistic delivery model and management model changed. We innovated together with other Chinese companies, where we see a lot of opportunities in future supply chain.

Next question is from [ Chang Xie].

Management, I'm [ Chang Xie ] from [indiscernible]. I have 2 questions. First, the new carrier model in your presentation, you mentioned at this point. So can you elaborate more on what you mean? Second, air freight forwarding business. For air freight forwarding and cross-border e-commerce logistics, what are your standards? What is the relationship between profit and freight rate? Last year, for top e-commerce companies, they have gone overseas. And we saw good growth in fourth quarter. In Q4, I think there is an increase by 80% in cargo growth. So this year, for cross border e-commerce, cargo volume and profit margin, is there any growth expectations for cross-border e-commerce companies? Well, there is the full custody model. Will there be some direct impact on your company? That's all from me.

Thank you, investor. Last year, we introduced a new carrier development goal. It is one direction of our overall transformation. As I said, I talked about our business transformation and digital transformation. The overall background is the same. Chinese companies, they want to control over the supply chain, and their brand is exported overseas. So they have more expectations and demands on logistics. In the past, they had caused consideration. Now they are looking at green resilience, stability and high delivery quality. In the past, we're a demand-driven and customer-driven. Now we are moving towards a demand-driven, supply side demand driven and also resource driven. That's the change in our model. So that's why we introduced a new carrier model. Comparing with a traditional model, we think that the content is richer. Our definition is by different -- by means of different ways, we will be able to control core resources, including logistic resources so that we can give full play to our globalized strength and comprehensive strength. Besides we'll use technology and digitalization to offer one-stop supply chain solution to customers. That is our overall definition. Comparing with traditional companies, well, we did not only put an effort on one end, there are other infrastructure and systems involved. For example, on marketing, so we can control the situation more. And then on capacity side, we do not only buy or rent. There are other models for us to improve our capacity and work with our working partners. At the same time, when we integrate the 2 ends and also when we make overseas layouts, we hope to offer more stable and long delivery to our customers. For new carriers, in the past, we wanted to integrate our freight forwarding business and other businesses so that we can get full play to our comprehensive resource strength. Besides, we can also exercise our innovation capability. But for new carrier business, we think it takes time to build. We do not start this model on all businesses at the same time. In the past, we started this new model from our air business. Your second question is about air freight forwarding and difference with cross-border e-commerce. For our air forwarding and e-commerce -- cross-border e-commerce business, we categorize based on service content. Traditional freight forwarding business includes air freight forwarding, and the others are in e-commerce segment. E-commerce operation is very different from traditional forwarding. So it's more package. In terms of customs, custom separation and also dispatch and so on. So it is based on smaller packages. It's different from traditional air freight forwarding. So this part is being put under across for the e-commerce. Now for our cross-border e-commerce customers and platform customers, if they give us bigger packages transported in traditional ways and those will be placed under freight forwarding business. So that is our standard basically. You asked quite a number of questions. I did not remember all of them. Can you repeat your questions, the latter questions?

It's about your cost for the e-commerce business. In 2024, when it comes to cargo volume and profit, do you expect a growth for your cross-border e-commerce platform, for customers e-model would be the impact on your business?

Right, in 2023, especially in the second half, cross-border e-commerce grew quite fast, and we see the opportunity. Our business growth also was quite good. For 2024, our expectation was mentioned just now. We think that, to a certain extent, this market will see some growth. But if we want to improve our quality, first, we have to seize the opportunity to adjust our structure and expand our shipping lines and our capacity. Besides, there are also some uncertainties in cross-border e-commerce. So we have to integrate that with our other models to reinforce our position. In 2024, our direction is in terms of capacity procurement, comparing with 2022, procurement costs may improve. So if there is no major structural risk in 2024, we think that we will be optimistic.

Okay. Thank you, Mr. Gao. Because of time, we will now take the last question. Let's see whether there are questions from the floor. If not, then we will take question over the line. Last question, please. Next question. [ Wang Lu ], please.

I am [ Wang Lu from Dongguan Private Equity ]. Two questions. First, for Sinotrans DHL business, how big is the share of e-commerce business? For e-commerce and ordinary courier business, where is it the same in terms of fees? In 2023 for contract logistics, your profits grew 12%. What is the main source of such increase?

For Sinotrans DHL, this is related to import and export business. There are import and export business for e-commerce business. It accounts for a certain share of the total business in terms of fees basically is consistent. But for different customers, for example, those customers with -- contribution, those core customers, the fees would be different. So they will offer some discounts. But for the service content, basically, it is standardized in order to ensure security, convenience and also reliability. That's your first question. Contract logistics, I answered an earlier question on that. I have already made the point last year for the growth. I don't know whether you listened to -- you heard that answer earlier. Now in the past 2 to 3 years, there was growth on contract logistics. That is from our internal restructuring, our organizational optimization, our asset allocation and also adjustment to our front-end customer and also our operation improvement. So in the past 2 to 3 years, especially last year, we achieved scale growth and efficiency improvement for contract logistics.

Thank you, Mr. Song. Thank you, Mr. Jiuyun. Thank you, investors, for your questions. It's almost time. So the 2023 annual results announcement will be concluded here. Once again, thank you, investors and media, friends for your interest and long-term support for Sinotrans. In the future, if you have further questions, please contact IR team any time. Thank you. We will adjourn here. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]