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

Dear investors, welcome to the 2025 midterm results announcement of Sinotrans. And if you like to have the PowerPoint presented today, please send an e-mail and we will share it with you. Today, we have with us the Chairman, Zhang Ji. Board Director, General Manager and Chief Visualization Officer, Mr. Zang; General Manager, Secretary of the Board and Chief Legal Consultant, Mr. Li; and the Financial Director, Li Xiao YanLX also have Ms. and Mr. the Non-Executive Board Director. We're going to break it down by 2 parts. One is we will invite our Chairman to give a brief outlook of the next half of this year and the review of the last half of this year.

Dear investors, good morning. I'm Zhang yi Lu, Chairman of Sinotrans. I would like to extend a warm welcome and announce the midterm results for the first half of 2025. With frequent incidents, the overall tariff levels remained historically high and the international [indiscernible] by Chinese economy demonstrated resilience amid these changes. However, we also noted the effect of domestic demand remains sufficient. Following the U.S. announced in April of [indiscernible] in multiple countries, international sea and air freight demand showed a trend of weak growth, and this is directly reflected in the freight rate for both sea and air transport. So the average China container freight index fell by 8% year-on-year. In air freight, the rate for U.S. and European routes declined significantly from January to April. Although the rates saw some recovery of the U.S. announced 90-day tariff fees in mid-May, but they remained below the level of the same period last year as of June. Overall, the macro environment has posed significant challenges to China tariff trade operations, yet we have effectively navigated the brought by disruption. In the first half of this year, we proactively and swiftly responded to changing conditions, achieved revenue of RMB 50.5 billion and net profit attributable to shareholders reached CNY 1.95 billion, particularly with an over 45% Q-on-Q, quarter-on-quarter increase in the adjusted nonrecurring net in the third quarter. And right now, in the first half, we have declared an interim dividend of CNY 0.145 per share and representing a cash dividend payout ratio of 15.5%. When combined with the share repurchase amount, the total payout ratio could achieve 76.7%. During this period, our sea freight forwarding business volume increased by 6% year-on-year. Despite the downturn, the overall market amounting pressure on logistics companies on both ends, we have done ongoing management of low-efficiency operations, and this has helped us keep the profit per container largely stable. And the controllable capacity of our air channel reached 159,000 tonnes. In July, we have released the first ever Sinotrans bank warehousing and logistics REIT, achieving a premium rate of 16.16% record high at the time. This shows the capital market strong confidence in our operational capability. In the first half of this year we upgraded our strategic marketing system, focusing on both the quality and expansion of the market development. We identified key industries and classified industries for marketing strategy. Through this pilot initiative aimed at headquarter-led integrated management. And we have continued to optimize our resource allocation with notable achievements. We have further strengthen collaborative partnerships with strategic resource partners, accelerated the transition towards new carrier model and consistently enhance the capabilities of controlling cargo capacity and managing both sides. Now the REIT issuance has already been communicated and will not reiterated here. In June, we have announced its intention to divest 25% equity stake in [indiscernible] International. If this transaction is complete, it will enable us to further sharpen our focus on core operations, also deliver positive impact on near-term financial performance and cash flow. And in first half, we systemically advanced our digital transformation efforts leading to evident benefits. Guided by the objective of achieving group-wide operational integration, Sinotrans accelerated the rollout of its operational system, refine its digital transformation indicated framework and promoted the adoption of CRM systems. We have deepened reforms to enhance resilience and drive sustained organic growth. We identified 6 key reform initiatives, establishing a strategic marketing Sinotrans, including developing standardized log products, building into resource operation system, creating a new cost management and control framework, fostering innovative model for international talent management and accelerating comprehensive and rapid development of our overseas operations. In the first half of this year, we activated new engines for overseas development, achieving significant results from this internationalized strategy. The total profit from overseas operations increased by 18.1% year-on-year. In Hong Kong, we launched the first ever Greater Bay Area Cross-border Green Transport Express direct service, fostering ecosystem for cross-border road transportation. In Europe, we advanced the development of Liège hub in Belgium and established a branch in Serbia to form a synergistic network with our node in Romania. And we have continued to strengthen the cross-border road transport channels connecting Dubai and GC countries in the Middle East and Latin America. In Africa, we reinforced the role of Djibouti as regional logistics hub and develop cross-border transport portals across the continent. And we have also strengthened our commitment to technological innovation, a core driver. Sinotrans has initially developed a comprehensive smart logistics solution capability covering multiple business scenarios and leveraging diverse technology combination. Notably, the commercial operation mileage of autonomous driving highways exceeded 3 million kilometers. We initiated 6 new smart warehouse projects, spanning 5 major industries, launched our first smart warehouse in Europe, multiple AI+ applications were introduced, fostering an AI+ ecosystem. And we also updated the Green Logistics White Paper and actively participate in the formulation of national industry standards. We have launched pilot projects for new energy heavy-duty trucks and associated charging infrastructure. As a result, the first half of the year saw a reduction in both total operational carbon emissions and carbon intensity. Let me break it down by different segments. In the first half, the Logistics segment generated revenue of RMB 14.32 billion with profit around RMB 320 million. However, due to the persistently weak domestic demand, the contract logistics market continue to face pressure. The warehousing rates were historically low. While the segment experienced a decline in both revenue and profit as rigid cost structures, this performance was consistent with the broader market conditions. Now moving on to forwarding service. This is a cornerstone segment. It generated revenue of CNY 29.3 billion and profit of CNY 1.22 billion. While the segment's revenue declined primarily due to the lower freight rates, the company's strengthen cost control, enabling overall product profitability to remain relatively stable. As in the e-commerce segment, reported revenue of CNY 6.57 billion, up by 77.3% and we generated profit of CNY 72 million, and the growth was primarily driven by higher business volume from the online freight platform. However, the profitability faced pressure due to the decline in market rate. Currently, influenced by the U.S. tariff policy, there is significant risk of decline in foreign trade, particularly in export. And amid profound transformations, including the restructuring of global supply chain, evolving customer demand and reshaping of regulatory framework, Sinotrans will continue to enhance its market expansion capabilities. We're committed to achieving a strong conclusion to the 14th 5-year plan. So in the second half, we will focus on strengthening strategic implementation, focusing on high-end international intelligent green development. Second, market expansion will focus on key industries. We will strategically deploy resources in [indiscernible] factors to both differentiated competitive advantages. We will strengthen water transportation by consolidating procurement for existing business operations, enhance integrated operational capabilities focusing -- by collaborating effectively with the resource partners to strengthen control overseas shipping group. And the development of standardized products for water transport channels will be prioritized. And we'll focus on enhancing contract logistics, bolstering solution leadership in target industry, focus on high-value segments by tapping into the customers' extended supply chain needs. While in expanding overseas market in Southeast Asia, capabilities across diverse business types will be enhanced with focus on automotive, electronics and green energy industries. In Europe, the focus will be on serving local customers' needs, keeping collaborations with the local resource partners, building overseas warehouses in Germany and building warehouse and distribution capabilities in Hungary. In Middle East, we will accelerate the application of the contract logistic model in countries like Saudi Arabia and South Africa, and Sinotrans will focus on improving local service capabilities for rail freight operations as well across the Europe, Asia [indiscernible] region. In strengthening management, we will enhance organizational governance, reinforce risk control and achieve full coverage of risk and compliance systems across all overseas subsidiaries. In compensation management, we will refine salary management policies and have robust monitoring inspection systems. In risk control as well, we will integrate management requirements into the digital workflows. And we will drive for excellent performance, Sinotrans will intensify the market expansion efforts, strengthen cost control and systemically optimize our asset utilization. Overall, Sinotrans will maintain strategic focus, overcome challenges and continuously enhance management capabilities to ensure a strong conclusion to the 14th 5-year plan. We're committed to achieving new breakthroughs in high-quality, more efficient and structurally optimized development, fully leveraging our strength to deliver greater value to shareholders. This is the overview of the first half of this year. Thank you for your support.

[Operator Instructions]

From China Merchant Securities. It does show great pleasure to raise questions at first in the line. And we saw that -- the dividend per share remains stable and the payout ratio moved up significantly in the first half of this year. So what is your outlook to the second half of this year? And it will have impact -- will have a positive influence of the divestment of the Las Chem International. With a significant increase of the payout ratio in the second -- in the first half, what is your outlook for the second half of the payout ratio?

Mr. Li will take this question.

Thank you for your question. Since we were listed in the [indiscernible] share market, we have continuously improved the payout ratio, achieving over 50% last year. Even amidst great challenges this year, we have seen a robust cash flow. That's why we can support it a stable and improved payout ratio around 53.5% in the first half, and it could reach over 70% due to the divestment in the Lochem International. It really shows that our confidence to the long-term growth of our business segment. And we have announced the intention to divest 25% of the [indiscernible] International. So in the second half, if it completed successfully. It will continue to inject more cash flow to our book. And based on the CapEx and some of the business acquisition in the second half, comprehensively, we are still positive. We continue to be very positive with the payout ratio in the second half. It will remain relatively stable. We will try our best and our -- within our capabilities to deliver the best level of interest to our shareholders.

Next question from [indiscernible] Securities. with Securities.

I have two questions. One is that in the first half with great impact of external influences, the freight business was facing great pressure and the profitability in the first half still remained stable. What kind of motives or tools have you successfully adopted to counter react to the external influences? And we still see some of the pressure showing evidently for the freight forwarding and particularly for the air channel, what is your outlook for the air channel performance in the second half?

Mr. Gao will take the first question, please.

Thank you for the question. Yes, in the first half, we have also been impacted by the external factors, including geopolitical tensions. The overall sea freight and air transportation, also the comprehensive land transportation were greatly impacted. The capacity of the container capacity remains stable. And the supply-and-demand dynamics were quite fluctuating in the first half with the American route, particularly for the small parcel policy, the e-commerce fluctuated greatly due to that policy. Based on this condition, we have proactively and swiftly adapted to the new changes. Overall, we made several attempts and efforts. One is we have reallocated resources to correspond adjusting to different tariff levels. And we have leveraged the core influence of our leading clients and our position. We have been able to redistribute the capability. That is why we have achieved a stable performance in the first half. And in this container procurement and some of the centralized -- this coordinated deployment, we have been able to control the cost efficiently. And now we also made great attempts to improve our efficiency of the cost control. That is one of the good examples or demonstration for us to improve our cost control capability amid new changes and fluctuations in the market. Mr. Xu will take the second question about the establishment and improvement of a channel.

I think the great external impact is the trade war between China and U.S. and also the demand side was under great market pressure. So based on multi factors, this segment has suffered a slight decline, but the profitability still enjoy a slight improvement compared with the pre-pandemic levels. In market development, capacity procurement and network collaboration with the local suppliers, we will enhance our capabilities and improve our efficiency. So all of these efforts will bolster our performance in the second half. As to the air channel, we have greatly adjusted the capacity procurement and enhanced our deployment capability. We have strengthened the procurement of the capacity side. That is why we can achieve a positive improvement compared with the same period of last year. Overall, the trade war will still become a sticking point and pain point to the overall logistics market. Amid these challenges, in the short term, from the fourth quarter from the Q4 this year, we anticipate that the ad channel will see a recovery, but it really depends. It depends on the market dynamics.

[indiscernible] Securities.

In the first half this year, even with very complicated situation from the macro foundation, you still achieved significant performance. So about the sea freight, forwarding, the unit profitability remained stable compared with the same period of last year, and it improved greatly compared with the overall level of last year. So amid the strong great fluctuations in market, how do you make it to achieve the stable unit profitability like per container profitability? And what is the trend for the second half? And about the logistics segment, particularly the contract and logistics, what is the main concern is the fluctuations or risk in exports. So what's the demand dynamics right now for the logistics side?

Mr. Gao will take the question.

Thank you for your question. About the sea freight forwarding, your question is on how do we manage to maintain a stable profitability. In Sinotrans, there are several segments in the sea freight forwarding. One is the booking -- order booking and also the shipping agency, we have single -- like the single process and most process or the [indiscernible] holistic forwarding business. So the profitability for the most -- the profitability for the single forwarding remains stable and for the profitability for the holistic system service improved robustly. This is due to our decision to over -- transformation to the new carrier model. That is why the GP model remains stable. And about the China enterprise growing global trend as your second question, right now, this is a macro trend or transformation from like manufacturing. Capacity, export of the manufacturing capacity to export of the Chinese local products, a lot of the products for -- a lot of the Chinese brands and companies have set up their capacity in Southeast Asia and some parts of Europe. And we also moved quickly accordingly in such macro trends. We can be a supporting pillar to the Chinese enterprises going global. Strategically -- well conventionally, most of our clients are Chinese domestic enterprises, but with more global network building up within our capacity, we have a lot of the international clients. We can provide end-to-end business services. And we have support of the local service providers as well in a lot of the international markets.

[indiscernible] Securities.

First, congratulations for the strong performance and great fluctuations in the first half of this year. I have two questions. The first one is how do you balance the CapEx and profitability in the future? Well, if the ROI will face pressure, then how do you balance the CapEx and the return to shareholders? In the future -- the second question is in the future. We know that the cash flow is sufficient but with more CapEx in the pipeline in the future, what is your anticipation of the capitalization, market capitalization? The overseas business accounted for around 20% to 30%. And how do you value and capitalize the overseas business?

I will take it briefly and then other representatives -- other managers will respond in detail. We -- financially, we are very healthy and the debt-to-asset ratio remains at a healthy level. The operating cash flow remains very healthy and robust in the first half. And we went very robustly in the CapEx control. And in the dividend payout, the dividend payout depends on our considerations of remaining a robust and safe financial profile because the external market is very fluctuated. This is a lifeline and the bottom line for us to keep and remain a healthy financial profile. But in the same time, we want to deliver value and benefit to shareholders. So we will take a comprehensive consideration on multiple factors. We want to balance this out while keeping a healthy financial profile and also delivering great value to our shareholders. The second question is the overseas business. And Mr. Gao also shared with us our plan for the overseas business expansion. The overseas business will one of the pilot segments for our future growth and expansion. And that will also be put as one of the priorities in CapEx. The core element is on the return of investment and the market value of these overseas segments. Because Sinotrans put great value and significance on market value, we were like been listed in Asia and HS market. We really value the market value. So overseas business will still be put on one of the priorities in our future plan. I would like to reiterate a lot of the overseas market valuation outperformed us from our peers, but amid such great challenges and market fluctuations in this global landscape. The overall market expectation, particularly in terms of the M&A market value will go down. I think that bodes well to our M&A plans in the future. In the relatively short amount of time, short period, we are very confident to balance the CapEx and the overseas business expansion. Thank you for your question.

[indiscernible]

we have seen a decline in the government subsidy. How do you expect the government subsidy trend in the second half? And the second question is, have you seen any recovery -- signs of recovery of the logistics market? And what is your plan on this?

Mr. Gao will take the question.

Thank you for -- the profit of logistics is around CNY 700 million, a slight decline for the -- compared with CNY 1 billion in the basket. The subsidy for the freight business and also the overall freight forward business has declined. The subsidy payments into Sinotrans has not suffered drastic decline because we have controlled and managed the China U.S. freight business. Overall -- the subsidy payments declined due to our proactive control of the trade volume -- the freight business volume, not mainly because of the government initiative. In terms of your second question, the effective domestic amount of logistics market is insufficient. And the central government's stimulus policy has not been released yet -- has not been pronounced in the market demand yet. It is demonstrated in the statistics like the vacancy rate and the freight rate. It continues to go down compared with last year. But the market has lifted like the auto market in new energy market compared with the conventional fast consumer market. These new emerging markets have enjoyed a boost. So we need to be swiftly responding to these new opportunities. The profitability increased by 18% to the export. This is due to our expansion of the overseas export business in the segment of contract logistics. You can see that we can respond quickly to different dynamics in different segments. Thank you.

[indiscernible] I have two questions. The first is speed of digital transformation. Chairman just mentioned your efforts and your strategic deployment. So in terms of digital transformation, what is the status quo right now? And how will it boost our operations and expansion of business segments? And the second question, what is the status with your collaboration with Pony AI -- what is the update and about the autonomous driving, where are the pilot projects? And what are your plans for pilots in other regions?

Mr. Gao will take your question.

Thank you. Regarding digital transformation, we took a -- we took a different strategy compared with our peers. In business adjustments, we transformed -- we have adopted a new carrier model. While this decision was based on new -- based on the trends of the industrial restructuring in China, as you may see the e-commerce and the live broadcasting platform boosting in China, the logistics market were disrupted and went through deep transformation. That is why we kept up with this trend deploying international network and building our capacity and controlling the supply chain controlling cargo and controlling capacity. Owing to this overall digital transformation, our business -- our business model transformed into the end-to-end service delivery. And the operational model also transformed from single port operation and service into a holistic and sophisticated service delivery. Our organizational governance also transformed from the single station management to the middle platform governance and administration. And these efforts have turned effect reflected in our performance improvement in the second half of last year and also the first half this year, we have maintained quite robust in our operating performance. So the whole group-wide digital coverage has expanded significantly. That could enable us to satisfy the demand of the expanding e-commerce demand. Step by step, we have basically completed the deployment of the charter freight service. We have a lot of the direct clients. All of our direct clients have been included into the direct CRM system. That's why we can spot emerging market opportunities based on the swift market insight, we can move more quickly. And we have moved forward from the customized service to standardized products, standardized service. And the whole quotation system now has been successfully piloted in some of the regional offices. In the next stage, we will optimize our product delivery, service delivery system. That could be more adapted to this trend of Chinese enterprises going global. They are requesting end-to-end system service requiring better resilience of the whole logistics service system. Regarding your question, the second question, autonomous driving. 3 years ago, we initiated a final -- another logistics joint venture company with Pony AI focused on intelligence and autonomous driving of truck relief -- truck fleet. Now the commercial operation mileage of autonomous driving highway has exceeded 3 million kilometers, and there were no accidents. And the safety and security of the autonomous driving has been guaranteed and verified. This autonomous driving can extend and can cover the commodities and good transportation covering a lot of the major ports. So at the main highway from Beijing, Tianjin and to Southern China, you can see the autonomous driving fleet transporting along this public highways.

[indiscernible]

I have two questions. We have noticed that the cash flow in the first half of this year improved significantly compared with last year, but the accounts receivables also a great portion. What is the reason behind? And you mentioned that you have issued in the first half of this year. What is the major contribution of the [indiscernible]?

Thank you for your question. The first question is about the account receivables, right? Now it is best to compare the status to the beginning of this year. Primarily in the first year, we will put more efforts in expanding market expansion. And in the second half, we will move quickly on recouping the recouping a lot of the account receivables. And over these years, we have stepped up our efforts in control and management of the accounts receivables. If you compare with some of the peers and the counterparts in this industry, we outperformed significantly. And second question is about the REIT, right? What is your second question about?

REIT.

Got it. Stacking of the REIT is the logistics company that we own. The payment of the accounts receivable depends on the terms of the payment, particularly in the contract with our logistics -- different logistics companies. I don't know if I have responded to your question. Your second question is what is the contribution of issuance. The issuance of the REITs went successfully, right? The premium rate was record high. At the point of issuance, the premium rate really was one of the top levels in this market. And it contributed [indiscernible] around CNY 780 million. And in the future, there will be CNY 340 million extra to be injected into the profit. Some of [indiscernible] will be done by stock repurchase. And we will always aim for the higher return target project.

Next question from Investment.

Mr. Zhang just touched upon the priorities for the second half of this year, focusing on the strong conclusion of 14th 5-year plan. Could you elaborate on this? What is the progress right now concluding the 5-year plan? And could you also elaborate on the future positioning of your business? And what are the main priority focus?

The 5-year plan right now is in the making, which is one of the main priorities, we are reporting back our market insights. The overall positioning, market positioning right now was broadly clear in our strategy. So during the last 5-year plan, our growth was innovation driven internationalized logistics company and with the next round. In the 14th 5-year plan, our market position was around the international global logistics platform. But in face of the disruptive changes in the global market, we have indicators of incremental growth. And now as one of the top players, our goal is to become a world-class logistics company. Conditionally, the growth path could not sustain in the future. That is why we -- our position with innovation-driven business model reshaping there are 2 key words global, international and holistic management. So from the perspective of management governance, our role or our priority for the next 5-year plan is to make an international plan and internationalize all of the holistic governance because we have holistic segments from air to sea to land transportation. We need to step up our leadership role in this industry. At the same time, we are having many rounds of discussions on how we should implement and how should we execute this plan. I think the first key is the market driven. We are always centered in market-driven development and client focus, delivering value to our clients and customers. This is one of our core missions and the sources of value delivery. And we will continuously build our solution capabilities and ecosystem of logistics service. As we have mentioned, we have more holistic logistics solution capabilities. We have already built the capabilities, but moving forward, we need to smartly and intelligently connect all of these capabilities build up in different parts of the world. The global market, the global demand will be more diversified. So in the future, we will synergize the capabilities that we have held in different parts of the world. And the second key word is digital -- is the service delivery. In the 14th 5-year plan, compared with our counterparts in domestic and international markets, we have built our distinctive advantage in delivering holistic logistics service. So put it briefly, we need to build a network internally and build a platform externally. So internally, we should synergize the resources that we hold to move it online and complete -- improve the digital transformation. And externally, with the backing of the digital transformation of the internal resources of the domestic resources, we need to build a ready-to-use platform connecting our clients and be integrated into the digital supply chain of our clients in different parts of the world. That is one of our main game to be integrated into our clients' global supply chain. Management has distinctive characteristics. We are one of the key players in public transport service providers. We have developed extensive partnerships with airlines, shipping companies, logistics parks and other external partners. Backed by these built and established capabilities, we want to build a more resilient, more efficient and more intelligent and green service provider in the logistics market. So that is our consideration for the next 5-year plan. Of course, it's it won't be released by the end of this year. Well nationally, a lot of movements were underway with industry consultations with the government and we will gather all this information, the incentive of the market trends and also the government trends. We will draft and complete the plan by the end of this year.

Next question.

[indiscernible] I have one question -- we have seen the announcement of the stock repurchase, and how it positively influence the next strategic plan?

Well, this partner is quite complementary with our service. It has been one of our long-term partners. And in this macro trend, we have strengthened our partnership. with more stakeholding in this partner, we believe that we will have a more state and capacity building in our transportation channel to stabilize our capacity supply. Yes, like we have stock of around CNY 300 million. And we will update the more stock -- the extra stock based on the market conditions. As you know, the different markets is still not stable. I think that financially, there won't be a lot of burden. [ Anton ] and Sinotrans have always been long-term partners with each other. I think this new capital connection with Anton will bring more benefit for us to build like a strategic synergy. they have this lead -- they took a leading role in the trade domestically and internationally. So in terms of the market positioning, we think we can be like building mutually reinforcing. I think this kind of stock in Anton will also have far-reaching influence to the next 5-year plan. They have in River and Power River Delta region. Through the partnership with Ant we are confident to deliver more standardized water transport products, connecting or building up more capacity in different regions and ports. I think that is a very reasonable plan, and we will make more announcements based on the market conditions.

Next question.

[indiscernible] I have two questions. One is International divestment. What is the status right now? We have seen net profit margin has declined in the first half. What are the main influencing factors? Is it because of the exchange rate, foreign exchange rate or anything else?

Mr. Xu and Mr. Chen will take these questions.

About the divestment in [indiscernible] International, we have made a public announcement. So right now, everything is on track. Because right now it's in the process of inspection and approval of the state-owned assets commission once it's approved and implemented, we hope that by the end of the Q3 and in the beginning of Q4, this deal will be completed and closed. I think it will bring positive benefit to our cash flows and financial profile. And the second question is around the influence of foreign exchange rate. Like let's reiterate the second question -- clarify the second question. The second question is on the net profit margin went down a bit. Is it because of the foreign exchange rate fluctuations? Well, from the -- from the cost side, we have different denomination like from U.S. dollars and euros. Of course, the foreign exchange rate could be one of the factors. The decline of cost went lower than the decline of profitability. That is why the net profit went down a bit. Like we have mentioned earlier, the profitability was quite leveled off with the pre-pandemic level. I think this bodes well to viably for our performance.

Next question. [indiscernible] with HSBC.

I have three questions. The first one is in the first half of this year, we have noted some of the impact of air freight, the sea freight. Are you -- do you expect a significant decline of sea freight business in the second half? And the second question is the profitability of the sea freight business went up by 18%. Do you have any figures in absolute sense? And how does it contribute to the overall profitability? And the third question is about the forwarding business. In the first half, the revenues went down by around 68%, but the profitability went up or even remained stable. How do you do that?

Mr. Gao will take the question.

The first half, due to reciprocal tariff policy, we have seen some of the sea freight like we have a lot of the sea transportation run. But overall, the Sino-U.S. transportation volume went down a bit. But if you look at different routes with Southeast Asia and Europe, the volume went -- remained stable. So this sea freight one has not impacted greatly to the overall sea freight volume. About the second question, the overseas business, with the trend of the Chinese enterprises going global, we have swiftly stepped up the capacity building of our overseas business market. The profitability of overseas business accounted for around 10% of the overall profitability. This is the first time that we have achieved this level of profit contribution. So with the expansion of overseas business, we are confident that this ratio will go up. And the third question about the freight forwarding business, we have made continuous attempt in optimization in this regard. We have been optimizing the business restructuring, like focusing on the profitability of new incremental business. That is why you see a slight decline in the revenue, but the profitability go up. It's mainly due to optimization of the internal management, particularly focusing on the profitability management.

Any other questions? Next question, with [indiscernible]

[indiscernible] Capital. About the sea freight segment, the first half of this year, what is the proportion of the U.S. route sea freight business? And what is the trend of that? And do you expect any increase in the Southeast Asia?

Well, based on the first half, the Sino-U.S. route accounted for 15% of the overseas sea freight down by 1.6% compared with same period of last year. Southeast Asia grew accounting around 44%, up by 1.3%, while the route Europe went stable with the same period of last year, accounting for around 15%. About the re-export trade, the policies and the tariff policies went -- remained uncertain among different regions of the world. Currently, the re-export trade went up a bit due to the industrial restructuring, not because of the noncompliant recurrence rate.

[indiscernible] question.

Now we are clear that you will put more efforts in overseas market expansion. Do you have any priority projects, target M&A targets and the time line? Can you give us more details on this?

Mr. [indiscernible] will take this question.

On the Chinese supply chain going global. For example, in Southeast Asia, Middle East and some parts of Europe because the air freight business was more connected to the European market. Now we have covered fully in Southeast Asia. And in Europe, we will step up the warehouse capacity building. We have around 700,000 square meters in self-owned warehouse and also released warehousing. We will continue to enhance the capacity of warehousing area. As to M&A, we will target more on the external partners in local markets. In core regions, we will have -- we will build strategic partnerships with local suppliers. And we expect to speed up the transformation and building up our capacity and network in the international market. Thank you. Thank you all for your questions. Let's move to the last question.

[Foreign Language].

So I had a question with respect to the outlook for the second half. We've seen quite a lot of front-loading in the first half for the sea freight business. At the same time, the expiry of the de minimis regulations resulted in a significant drop in the air freight volumes out of China because these are mainly designed for the U.S. Now going into the second half, do you think that the sea freight volumes could shrink or even decline?

I'm sorry -- because like the interpretation line is not round way.

Sorry, do you want me to repeat my question?

Yes. Now I cannot do the simultaneous. I need to do the consecutive. So please let's take the final question from you, and please reiterate your question.

Yes, sure. So what is this outlook for the second half given that first half was strong for sea freight, and we see a lot of trade impact in the air freight business. So what is the outlook for the second half in the forwarding business? I can take it offline with the team it's okay.

Because the lines are missed and the Chinese channel is rolling and I'm listening to you, but...

I can take it offline. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]