Earnings Call: H1 2023

Aug 29, 2023

Fellow investors, analysts, and friends from the media, good afternoon. Very thankful for your presence at the first half 2023 result presentation of COSCO SHIPPING Ports Limited. We will do this from the physical location as well as online. We have Mr. Zhu Tao, Managing Director, with us today, and Mr. Calvin Wong, Deputy Managing Director, Mr. Chen Yipeng, Deputy General Manager, and our Chief Accountant, Mr. Zhao Fengnian. Today's presentation, we will have our management walk through the key highlights, financial performance, operating review, as well as strategy. Then we will have a Q&A session. Mr. Zhu, please. Fellow friends and investors, good afternoon. I am Managing Director, Zhu Tao, of the company. First of all, welcome to the 2023 H1 first half results of our company. May I express our welcome to all of you, and thank you for the long-term support to our company. I also hope to take this opportunity to communicate with and have exchanges with you. Our briefing comes in five parts today. First is the key highlights and financial performance. Then thirdly, the operational review. Fourthly, strategy and outlook. Last but not least, we will move into a Q&A session. First of all, I will walk you through the first half of performance. In the first half of 2023, the United States and Europe have slowed down and decreased demands. In addition to geopolitical tensions, we are under a lot of pressure. Despite all these pressures, China foreign trade is characterized by strong resilience and vitality. According to the China's General Administration of Customs data, total value of foreign trade is RMB 20.1 trillion. That is an increase of 2.1%. Based on Ministry of Transport of the People's Republic of China data, our container throughput is at 150 million TEUs. That is an increase of 4.8% year-on-year. The external environment is being more and more complex and severe under our leadership and following the 14th Five-Year Plan, and opportunities brought forward by the dual circulation development strategy and the two-wheel drive strategy. We insist on seeking progress while maintaining stability. In the first half of the year, our terminal profit has a slight decline of 2.2% year-on-year, of which our terminal in China has come down by 2.1%, and subsidiary minimum terminals rise by 8.3%. Profit from non-subsidiary terminals declined by 4.9%, mainly because of Yantian and Hong Kong terminals. As for overseas terminals, profits fell by 2.8%, of which holding terminals fell by 28%, non-subsidiary terminals rose by 27.8%. The rise in profit mainly is because of Suez Canal Container Terminal, Kumport terminal, and Red Sea Gateway Terminal, which partially offset the decline in profit from CSP Spain and Zeebrugge. In the second half, the company's terminal profit increased by 1.3% year-on-year, outperforming the 6.3% decline in the first quarter. China terminal port increased by 3.8%. Subsidiary terminals rose by 11%. The non-subsidiary terminals rose by 1.6%. In overseas, the terminal profits dropped by 9.5%, subsidiary terminals down by 36.9%, non-holding terminals up by 30.8%. It is mainly due to the rise in throughput of the Suez Canal Container Terminal and Red Sea Gateway Terminal. In terms of the subsidiary terminals, the decline in profits of CSP Spain and Zeebrugge terminals affected our overall profit performance. Although the global economic growth will continue to face challenges, we continue to see new opportunities in ASEAN and Africa. COSCO SHIPPING Ports will continue to develop our opportunities in strategically important subsidiary terminals and highly profited non-subsidiary runs. We rely on lean operations strategy to improve the efficiency of the terminals, and to create a corporate value creation and a long-term sustainable development path. Now, may I invite the company's chief accountant to walk us through the financial performance. In the second quarter, our revenue came down by 3.8%, gross profit decreased by 11.1% year-on-year, and the profit attributable to equity holders of the company declined by 13.6% year-on-year. Despite that, profit from joint ventures and associates increased by 8.9%. Let's take a look at the revenue in the first half. Our revenue came down by 2.2% year-on-year. Our gross profit decreased by 2%, and our gross profit margin was flat. The joint ventures and associates profit came down by 4.1%. Overall operating profit remained stable. However, terminal profits in the first half of the year fell only slightly by 2.2%. Our average bank borrowing cost, because of interest hikes in Europe and the U.S., have caused that cost to go by 31.9%, and that had caused our profit attributable to shareholders to come down. As far as payout is concerned, the dividend payout ratio remains unchanged at 40%, and the first half would be $1.744 per share. Through revenue enhancement, we will actively increase our rates, optimize the terms of our storage, and also work on additional revenue sources and cost reduction. We will also promote the improvement of efficiency of terminal frontline operations and also to control the cost per TEU in order to enhance the overall profitability of the company. Now, let's take a look at the revenue and gross profit margin of the second quarter. China terminals came down by 2.5%. However, the gross profit margin remained at a high level of 39.5%. Impacted by downward pressure of global economy, Xiamen Ocean Gate Terminal's revenue came down by 2.1%. However, compared to that of the first quarter, that is an improvement. In the next half, we will continue to build the Port Plus supply chain strategy, new model between Xiamen Ocean Gate Terminal and Xiamen Haitou Supply Chain in order to build a one-stop integrated logistic service to our customers. With Tianjin Container Terminal, profit margin go up by 1.2%, and we will continue to capture opportunities from the inland hinterland, as well as the northern region. As far as overseas subsidiary terminals, revenue fell down by 5%, and the gross profit margin was at 18.7%, benefiting from Abu Dhabi terminals and a dual brand strategy. Our throughput climbed to 66%, and revenue and gross profit margin rose respectively by 53.8% and 25.4%. Also, as far as the global demand is concerned, it's shrinking. The PCT continues to be stable as far as throughput is concerned. Into the next half of the year, we will continue to manage well and control our cost and enhance efficiency. We are committed to optimizing our portfolio of global terminal assets, actively participating in the integration of domestic port resources. For example, in the first half, we increased our stake in Xiamen Ocean Gate Terminal by 30%, which has now become a wholly owned subsidiary of ours. As far as overseas is concerned, we expect the growth potential of our overseas subsidiary terminals to be gradually released in the future, especially Abu Dhabi Terminal, and that will improve our overall profitability. Now, let's take a look at the second quarter terminal profit. Because of the dual circulation strategy, the terminal profit in China rose by 33.8% in the second quarter. When compared to the first half, that's a decline of 8.6, and this is a huge improvement. Now let me give you a regional analysis. In the Bohai Rim, it went up by 13.7%. That's accounting for 38.1% of total. That's a 4.2 percentage points increase year-on-year. That's the largest contributor of the company's profit. That's mainly because of the Tianjin Container Terminal. In the future, we continue to grasp the opportunity of increasing the proportion of trade in the northern region. With the Yangtze River Delta region, it rose by 41.6% year-on-year and is a contributor of 9.4. That's because of the Shanghai Pudong and Ningdong terminals that have drove a sharp rise in the profit. With the southeast coast region, the profit from terminals went up by 55.8%, accounting for an 11.1% of total. That's an increase of 3.9 percentage points. That's mainly because of our additional stake in the Xiamen Ocean Gate Terminal. If we compare our internal growth, the additional 30% of Xiamen Terminal's profit and the Xiamen Haitou Supply Chain project, the profit rose year-on-year by 8.7%. In the Pearl River Delta, our profit came down by 25.9%. That's a 7 percentage points downwards to a 19.2% contributor. That's mainly because of the de-stocking in Europe and the U.S. In the southwest coastal region, the profit came down by 22.6% year-on-year and is a smaller contributor at 5.4%. That's mainly because of the Beibu Gulf Port Co., Ltd. convertible bonds fair value changes. If taken that out, the southwest coastal regions terminals profit increased by 16.7%. In the future, we believe that with Regional Comprehensive Economic Partnership and the opportunities in the hinterland, the profitability of this region will improve. As far as overseas region is concerned, terminal profit declined by 9.5% year-on-year. The share dropped slightly by 2% to 16.8%. That's mainly because of the decline in throughput and profit in CSP Spain and Zeebrugge. In the future, we will continue to cultivate the Chinese market and seek progress while expanding our overseas market. With a gradual increase in the utilization rates of our overseas terminals, we expect overall profitability to grow in the future. As far as our balance sheet is concerned, by end of June this year, our deposits and cash is at $920 million. That is a healthy level, of which RMB 47%, EUR 19%, USD 29%, and other currencies composes of 5%. As far as loan is concerned, the balance of loans accounted to approximately $2.98 billion, of which RMB is 25%, EUR 21%, USD 51%, and other currencies 3%. With the U.S. going into the rate hike cycle in March 2022, there had been 10 rounds of interest hikes and a total of 500 basis points. With the European Central Bank, as of June of 2023, they have hiked the rates for eight times, a total of 400 basis point. That increased the company's overall financing cost. The borrowing cost has gone from 2.91% in the first half of 2022 to 4.97% in the first half of this year. Against this background, the country would focus on controlling the size of our debt and to expand our finance channels and efficiency of capital in order to buffer the negative impact of the increased capital cost. As far as the net debt-to-equity ratio is concerned, it has been kept a low level. In the first half, 30.9%. In the future, we will continue to take the advantage of a low leverage and to identify investment projects with good development potential in order to promote sustainable development. As far as capital expenditure is concerned, in the first half, it's at USD 437 million, of which equities is USD 267 million. That includes USD 121 million of the Xiamen Ocean Gate Container Terminal 30% stake. The Xiamen Haitou Supply Chain project is USD 94.41 million. The Hamburg CTT project cost us USD 50.59 million. As far as fixed asset investment, it's USD 115 million. That includes the existing subsidiary terminal of Chancay in Peru, and USD 13.91 million in Quanzhou Pacific Container Terminal new equipment purchases and other expenditures. Now, may I invite Mr. Chen to walk you through our operational results. Thank you. Now, let me walk you through this. In 2023, second half, the total throughput reached 34.27 million TEUs. That's up by 4.1% year-on-year. When compared to the first quarter, which was flat, we saw some gradual recovery in the second quarter, of which the subsidiary terminals that had 8.08 million TEUs. That's down by 1.4% year-on-year and accounting for 23.6% of total throughput. Those non-subsidiary terminals totaled 26.19 million TEUs. That's up by 5.9% and accounting for 76.4% of total throughput. Equity throughput reached 11.14 million TEUs, up by 4.8% year-on-year. Compared to the first quarter, when equity throughput dropped by 2.5%, the performance in the second quarter was significantly better. Amongst that, the equity throughput was 5 million TEUs, up by 3% year-on-year, and acted as a 44.9% contributor of total equity throughput. For the non-subsidiary terminals, it was 6.14 million TEUs. That's an increase of 6.3% year-on-year, accounting for 55.1% of total equity. In the future, we will continue to increase the share of container throughput in our subsidiary terminals and to deepen our lean operating strategy and improve the quality and efficiency of our terminal asset portfolio. We will continue to strengthen our control capabilities and replicate the successful model into other terminals, such as the CSP Abu Dhabi Terminal, which have a core competitiveness that has been increasing, and its throughput and efficiency have achieved very fruitful results. In the second half of 2023, our eight major subsidiary terminals have recorded a 2.8% year-on-year increase, of which CSP Abu Dhabi Terminal and PCT had reported a 66.2% and 14.5% respectively. In 2023 first half, we have already introduced 38 new routes, and with our 661,000 TEUs, our ASP in local currencies Our China subsidiary terminals increased by 5.85%, and European subsidiary terminals improved by 5.6%. We will continue to fully utilize the advantage of our links and our major shipping alliance to further expand our global rights and strengthen win-win cooperation to provide better services for upstream and downstream industries, and to build and to maximize values for all. As far as technology is concerned, we continue to push for digital and intelligent transformation and promote high-quality development, and to further set industry standards and to create value for. We strive to be at the forefront of technological transformation and upgrading through the following measures. The smart ports construction of Xiamen Ocean Gate Terminal and put it in use in a larger commercial sense. Abu Dhabi Terminal has been successful. We want to replicate that in commercial operations. The Tianjin Container Terminal has constructed the world's first automated upgrading and transformation project with 31 sets of automated gantry cranes and 12 sets of automated quay cranes. In the future, we will carry out similar projects in Wuhan and Zhengzhou and other subsidiary terminals. In order to further enhance the company's information system, we will continue to explore the real-life use of GSBN in terminals, and also to promote implementation of it in non-subsidiary terminals. Thirdly, the company continues to improve our EAM, Equipment Asset Management system, and to reduce the cost of equipment procurement, operation, and maintenance. We have already completed such in the Abu Dhabi and the Chinese subsidiary terminals. In the future, we will continue to build that in overseas subsidiary terminals. Fourthly, the company continued to develop and apply MIS systems in portable terminals. We will continue to analyze that with revenue and cost data and to improve the quality of our management. We will continue to promote the use of science and technology innovation and lead the upgrading of the ecosystem and to build this as our advantage. As far as the supply chain business, we are developing a global logistics network and building a comprehensive supply chain and new logistics supply chain networks. These are the progress that we have made recently. Our newly acquired project, the Xiamen Haitou Supply Chain CFS project, will undergo asset optimization and business upgrading. We will introduce e-commerce and the Central Asian electrical vehicle overland export corridor. Secondly, we are actively pushing for our CFS project. The Haitong CFS project is all put into operation this year. Thirdly, in the first phase of Abu Dhabi CFS project, we are actively strengthening marketing and promoting with other companies in the group. Fourthly, with the Zeebrugge CFS, it is mainly used for overseas transshipment warehouses and related businesses, including the China International Overseas Warehouse and solar energy projects in Europe. These are new growth drivers for the company. We will continue to improve the synergistic allocation of our resources and foster relationship between the ports and supply chain businesses and push for the second phase of Abu Dhabi and Peru, Chancay CFS, as well as other projects. Now, may I invite Mr. Chen Yipeng to talk about our strategy and outlook. In the recent years, the global network of the company has seen some rapid development. As of June 2023, we have a total of 47 terminal companies, of which 15 are subsidiaries. However, we still need to strengthen our solid foundation for further development. First, we will continue to optimize and improve our structure of the global terminal network and to enhance balance in our portfolio to explore investment and opportunities in key hub ports. Secondly, we will continue to improve our globalized port management capabilities to enhance our operating and management capabilities and resilience. As far as lean operations is concerned, we will adhere to value creation. First, focusing on stabilizing volume and promoting growth to implement precise marketing to promote introduction of new routes and new quality business and to increase market development. Secondly, we will improve efficiency and reduce cost and make new breakthroughs in upgrade of terminal services. We will continue to consolidate and improve the implementation with cost control measures and continue to control our costs and reduce it, and to improve the quality and quantity of terminal asset portfolios. Since the second quarter, the downward momentum of the global economy has slowed down. Based on the latest International Monetary Fund forecast, the latest growth rate of world trade will drop to 2%. Into the second half, we will face all kinds of different uncertainties, like the geographic and inflation risk. On China, the tenacity of China's economic development, a strong domestic market, and a sound demand structure will support our economy. With the Asian Development Bank, the estimation Asia-Pacific regions would grow by 4.8% this year to unleash new growth opportunities. In addition, Regional Comprehensive Economic Partnership would continue to promote member states to have a higher and deeper level of cooperation. ASEAN countries export can maintain a faster growth and will open up new markets for the company's businesses. Looking further into this year, we will continue to actively grasp the development opportunities. First is we will focus on global deployment. Apart from participating in domestic port resources integration, we will continue to optimize the control of global terminal assets and continue to improve our network. Secondly is we are committed to lean operation and management, leveraging on the synergistic effect of our dual brand business with COSCO SHIPPING Lines, and also to tap on the potential and increase growth, and also to build lean management. Third is to vigorously promote the development of supply chains, to lean on our own advantage to broaden the investment and development channels of core supply, to strive to make new breakthrough in the whole service supply chain. Fourthly, we will accelerate digital intelligence, green and low-carbon transformation. 2023 is a continuity year for the implementation of 14th Five-Year Plan. The dual circulation strategy will bring new opportunities. With the leading position of COSCO SHIPPING Ports in the global port operator industry, we will continue to base ourselves in the two drivers of global layout and lean operations and strive to be a leading comprehensive operator in a sustainable world leader. Now, let us take some questions, please. Thank you. Thank you, fellow management. Let's move into Q&A session. You are welcome to ask a question. Please name yourself and your organization before you name your question. Perhaps I will first ask for any questions from on-site here. There is an online question that is from UOB analyst. He has two questions. One is about, based on management data, some of the throughput of the terminals have come down, of which Xiamen, Nansha, and Guangzhou, and also the Zeebrugge and the CSP Spain terminals have suffered some evident decline. What is your view about the operations, and do you anticipate things to improve? Now, there are four ports that they are asking. That is Xiamen, Nansha, Zeebrugge, as well as the Spanish ports. Mr. Chen, could you take that question, please? Thank you. Thank you for your concern. Indeed, like your question, the four terminals, we have seen some different levels of decline. Now, this has to do with the economic trend that we see. For example, the Xiamen and the Nansha terminals, their business is mainly focused on Europe and the U.S. Now, impacted by the macroeconomic trends, we did see some decline. We also saw in the second quarter, it is already better than the first quarter. We believe that with the third quarter, which is a traditional high season, the business of these terminals would improve. Thank you. The second question is, with international trade slowing down, what is the outlook for this year as far as business growth and throughput? Let me take this question. I feel that by 2023, we continue to anticipate a weak growth in global throughput. It is only expected to be at 1%. As you can see in the first half, it is very weak. We anticipate in the second half, global demand can have a small growth, and this is because of the inventory spent has been quite big with the first half and also in the second half with the traditional festivities in Europe and U.S., we may see a little bit of improvement. However, we continue to insist in the optimization of our customers and to build new routes and new services. We anticipate that our holding terminal as well as non-subsidiary terminals would improve and steadily. We will continue to enhance our customer service level, especially strengthening on third party, which is the COSCO SHIPPING companies, the synergies with these companies, and in order to capture the opportunities of the various policies that the Chinese government is launching. Hopefully in the next half of the year, we can enhance our throughput and our business size. Thank you. There is an HSBC analysis asking two questions. The first one is wanting to the de-stocking of Europe and U.S. What is the impact, including the Pearl River Delta in terminals and also with the Red Sea Gateway Terminal? This port is doing well and wanted to understand the reason behind that. Can you repeat the question a bit, please? This investor wanted to ask about the impact to some holding terminals as because of the de-stocking of the U.S. and Europe, and also like to understand the impact to the terminals in Turkey and in Saudi Arabia. With the Hong Kong terminal, the value change is mainly because of prior to last year, because of a jam in the terminal. There are some transfer cargoes accumulating this year with the global jam softening. This has been alleviated. This impact is quite big for the Hong Kong terminals. As for Saudi Arabia, the business growth was because mainly of the UAE and China import increasing, especially with our consumers, foodstuff and consumer goods increase. This has caused the Red Sea Gateway Terminal growth. This is also a result of our marketing result. When we compare our throughput for transfer cargo, we see some huge improvement there. Thank you. The second question is about the 5-year plan of the company. How do we decline? How do we cut down a control on the per TEU cost? Per TEU cost? Can you repeat, please? This analyst would like to ask about the 5-year plan of the company as it relates to measures to cut per TEU cost as well as outlook. Mainly several areas. First is with digital transformation. We have already reported that through building EAM systems through a digitized management control, we improve the maintenance of equipment as well as cost control of our terminal network on a global basis. With this improvement, we observe that the cost of various terminals have been able to improve by 10% or more. We continue to push for data-based CEM management and also to realize our cost control targets. Thank you. Maybe we invite some questions from friends on site. Do you have any questions? I am from Hong Kong. My name is Kong. You have mentioned that the growth and the new lines would grow in the next half. Where does the growth drive come from, which region? You were talking about new lines. Where are the new lines? Also, I also like to ask what is the interest rate that your capital cost with the high interest rate? What is your anticipation about the capital cost in the second half of the year? New routes. Regarding new routes, the Southeast Asia business growth is, comparatively speaking, faster. This has formed a very good business support to many of the terminals we have in mainland China. With the Quanzhou new berth, that had given us some new lines in Quanzhou. We continue to plan on this. We believe that the coastal terminals in China would continue to keep a business growth with the Southeast Asian terminals. Also, the domestic hinterland transportation opportunities that has been created by the dual circulation strategy of the company. From the Beibu Bay to the Bohai area, as well as the coastal area, will enjoy from this opportunity. Let me take your second questions. We indeed are facing European and U.S. rates hike, and that had created a very big pressure on our capital cost. As far as the Fed is concerned, in 2022, March, they have started a hike cycle. They have already a 500 basis point at a total in 10 times of hike. The European Central Bank had added the rates for 8 times, and including the latest one, that is a total of 9 times with 400 basis points total. All in all, USD and EUR-denominated capital cost have been under a lot of pressure. That has caused our capital cost in these currencies to have increased. With those USD and EUR-denominated loans, the cost has become quite expensive. We would continue to control the scale of debt loans in these 2 currencies, and also to optimize our debt structure in order to lower our cost. For example, to replace loans with a lower coupon, to replace that with the previously higher coupon loans in order to buffer the negative impact. Now, as far as the actual impact is concerned, based on the loan size that we have now, of which USD and EUR with a floating rate is at $1.95 billion. Now with one rate hike, we have to pay more, $4.95 million as additional interest. Do you have any further questions? I am from Lao Shi Media. Good afternoon. I have two questions. First is about the overall growth this year. Mr. Zhu has said that the global expectation is 1%, so what is the company's expectation? In which range? Would it be better than 1%, or what? The second question is about capital cost, financing cost, including, you have talked about geopolitical tension, what kind of impact would it have on the merger and acquisition of terminal projects? Now, let me give you an answer and then see whether there are any supplements from our peers. This year, global container business is anticipated to increase by 1%. Since 2023, all of our terminals should not be lower than this 1%. That is because in the first half of our business, we have already seen that in our 45 terminals, more than half is in mainland China. We have analyzed that the Chinese market is large and is more resilient. Our domestic trade, traditionally, we are talking about export volume, but with the CSP terminals, we are more looking at domestic trade. With the completion of our targets in the first half of the year, we believe that we would not be lower than 1%. This is the target. Secondly, your second question has already been answered by Mr. Zhao regarding the rate hike cycle impact on us. We have, through various specific measures, tried to manage this. As far as overseas deployment is concerned, including what Mr. Chen has explained, the new routes in the next half of the year, we have plans for that, and investments in terminals would follow suit with the new routes. From what we understand now, in the future, with the development of our terminals, would mainly be in South Africa, South America, and Southeast Asia. Because we believe that the European and U.S. lines are somewhat more saturated, regardless whether it is from mainland China or from other places. The main routes, because after several decades of development, it is already quite saturated. However, with the new economies, the regional economies and emerging markets, the growth expectations are way better than the traditional lines. This is where we will focus as far as investing in new routes and terminals are concerned. Thank you. There is an analyst from Citi wanting to ask a question about the per TEU revenue and price increase in the second half. In our report just now, we have already mentioned that in the first half of this year, our overall domestic per TEU revenue increase is 5.5%, and in Europe it is 5.6%. This is mainly because of the continued efforts to optimize our business in the last three years, which has given us some very good results. Not only in our service contract rates we have enjoyed quite good growth, we also have some good revenue from subsidiary services in the contracts. For example, MTTEU, parking, and CUD, these are also being optimized, and the results are being transformed into our performance. Now, in the overseas region, we have kept an increase rate not lower than CPI. Into next half and next year, we are confident that our revenue will continue to improve. There is an analyst from online wanting to ask a question about the capital expenditure of the company into the next half and the next year. Let me take this question. In the first half of 2023, our actual capital expenditure is at $437 million. Equity investment is at $269 million. We have already talked about the additional 30% stake with Xiamen. It has cost us $121 million, and the Xiamen Haitou Supply Chain cost us $94 million, and the Hamburg CTT cost us $50.59 million. We have also used some money in building the new equipment and facilities in these ports. We have adjusted our 2023 plan. After that, our 2023 whole year capital expenditure is expected to be at $1.025 billion. Compared to our original plan, it had come down by $357 million. The fixed asset investment is at $668 million, and that is mainly used in the capital expenditure in Peru as well as other terminals. Second question is, what are the other projects that the company is working on in the next half, and how would that impact on shareholders' profits? We will answer this based on as a listed company disclosure. With the settlement of the Sokhna Port in Egypt, it has already been announced, and we are already into the delivery process. Looking at a global deployment, our company is investing in various global geographies, and this goes to explain our strategy focusing on emerging markets. In the Southeast Asia, in South American regions, there are also some projects that we are negotiating and trying to develop. At an appropriate time, we will disclose to our investors. Thank you. Thank you. Any questions from the physical location, please? Waters. I am Celine. I also like to ask about overseas investments. At this point, with South Africa, South American, and Southeast Asia, do you have more projects or investments, or do you see better brownfield M&A opportunities? Have the company considered spinning off and selling some of the equities of the terminals that you now hold? I will take a brief answer. Your question is a bit professional. As far as overseas opportunities is concerned, we try to have both brownfield and greenfield terminals, meaning to build new ones as well as to get them from M&A. Because we serve shipping companies and we must also consider the local laws and regulations in order to determine whether we should be going into the M&A. We will look at this on a case-by-case basis. Your second question was? Apart from investment, we also have to keep our asset alive. Of course, we will have to dispose of some assets at an appropriate time, and we will do that in accordance to the industry circumstances as well as looking at the profitability and the strategic importance of these assets. For those that are not up to strategic and financial requirements, we may have plans to dispose them. Once we have solid plans and at an appropriate time, we will disclose to our investors, according to a listed company compliance. Thank you. Any questions? Thank you. I am from media in Japan. There are media friends who have asked certain questions. Regarding adjusting the annual CapEx, I have a follow-up question. Mr. Zhao, you said that when compared to the plan at the beginning of the year, the annual CapEx would come down by RMB 384 million. Can you give us some breakdown? Why is it that you have downward adjusted the capital expenditure plans? That is my first question. Second question is about your financing cost. I appreciate that you have a lot of overseas business, and you have EUR and USD finances, denominated finances. Now with the economic circumstances, rates in China is very low. Have you adjusted your overall denomination structure? I mean, currency denomination structure. Do you have any specific actions in that area? Thank you for your question. Your question is also very professional. Let me address the adjustment of capital expenditure. At the beginning, we anticipate that for the whole year, that is highly based on the equities investments. Based on potential investment opportunities that we anticipate for the year, we have allocated some money there. However, when we look at it now, the progress of these opportunities may be different from what we had anticipated. That amount has been taken out. Because this budget is an annual budget, if it is not expected that that part would be deployed, we would take it out. With fixed equities investment, the reason is the same. At the beginning, for those terminals investment plans, as we see it now, there are some adjustments that had caused some adjustments to the CapEx. These are the main reasons. Your second question is about financing cost. Despite that, our main loans are in USD, but our main investment is in China and Europe. With mainland, investment is mainly in RMB, and in Europe, it would be in EUR. In financing arrangement, we follow a natural hedge policy. The revenue of the terminal would be matched with the loan, the currency that the loan is denominated in order to mitigate the risk in currency exchange. We are trying our best to optimize our capital structure, loan structure. With RMB and EUR dividend and revenue, we can also make some arrangements on the liability side based on the revenue currency, based on the currency that we obtain our revenue in. Yes. Thank you. Last question, because of time constraint. We can only take one last question. Any questions? Well, thank you very much. We will end our session here. Thank you for your support and thank you for your care and support to our company.