Hutchison Port H Unsp/Adr

Ladies and gentlemen, welcome to the conference call of Hedgeson Port Holdings Trust, Earning Results Announcement for the year end 31st December 2025. Now, I will hand over to Mr. Albert Chow, the CEO of Hedgeson Port Holdings Trust. Mr. Chow, please begin.

Thank you. Hello, everyone. Thank you for joining our 2025 results announcement call. As usual today, I'll give you kind of a lowdown as to, you know, how the second half of last year went, as well as giving you some thoughts as to how I see 2026. And then I'm going to talk, obviously, a little bit about the DPU distribution and how I see it going forward. And then I'll hand over to Ivy of CFO to quickly cover the figures. And then we'll finally end it with Q&A, depending on where what you guys want to ask me about. Overall, if you kind of look at our results, you would say I'm actually overall pretty happy with the 2025 results. It was obviously a fairly difficult year. The shipping market was particularly volatile given what's happening around the world, the geopolitical tensions, the tariff war, and all the things that's happening around the world has had an impact to the stability of the shipping industry and the movement of goods overall. So despite, you know, kind of all of that, we achieved a throughput growth above 3%, whereas most of our growth or almost all of our growth is driven by the growth in Yantian, almost 7% year-on-year growth, while Hong Kong, you know, kind of continues its decline that we have seen, you know, over the last couple of years. And I'll talk individually about them as well. But overall, if you kind of look at the individual trade, if you will, obviously, U.S. is affected significantly by the tariff imposed on China as well as other parts of the world. So if you look at the U.S. trade alone, especially export from Yen-Ten is almost down, you know, 10%. You know, the good thing is, you know, China export to the rest of the world, including Europe, continues to do quite well. in 2025, and Europe was a bit of a surprise. It actually increased 14% year on year in 2025, you know, despite whatever's happening around the Red Sea and around the Suez Canal. So we can actually definitely see that China is actually pivoting away from, you know, relying on the U.S. market alone, but growing substantially is Europe, Middle East, and Southeast Asian trade. And for Yantian, other than export, Yantian has also benefited a lot from the Gemini lines, which I talked about last year as well. Yantian was picked as the transshipment location for South China, and Yantian picked up a lot of transshipment, including some of the transshipment from Hong Kong as well. So in some sense, you can look at there has been some shift of volume from our Hong Kong operation into Yantian. And overall, the trust, you know, it doesn't really suffer from that transition because, you know, Yantian margin is as good as Hong Kong. So overall, I think we did quite well. Obviously, we have, you know, refinancing done last year, which, you know, kind of increased our interest rates. And, you know, in 2026, we have two more refinancing to be done as well. And so we are definitely on the lookout on, you know, how interest costs is going to affect us going forward. But overall, as I said, you know, we did quite well. Overall, 2025, year on year, from a profitability standpoint, we've done okay. You know, I'll talk a little bit about DPU, obviously. We've decided on a four-year distribution of 11.5 cents, Hong Kong dollar cents per unit, which is, you know, slightly lower than what we had in 2024 of 12.2. So it's about, you know, 4%, 4%, 5% decline versus last year. And there are a couple of reasons for that. Obviously, you know, it is still within what I was hoping for. So we have done well on the profitability front. So our cash flow actually increased as a result of, you know, higher profitability. but it is negatively impacted by two things. Number one of all, obviously, when we refi our average cost of borrowing increase last year, you know, despite us, you know, paying down debt, that offset some of it, but interest costs, it has gone up, number one. Secondly, we're also impacted by the fact that Yantian, you know, starting with 2025, we've started with the making statutory reserve in our Yantian operation, where, you know, previously with foreign joint venture, we were accepted from the statutory reserve. But because China changes company law, we are no longer, Yantian is no longer accepted from making these statutory reserves. So we have to start making that, you know, 10% reserve in 2025. And that, in some sense, reduced our ability to dividend out almost close to about $200 million in distribution, and that affected almost close to around $0.02 of DPU right there. So in some sense, the profitability growth offset some of that statutory reserve requirement, and we ended up with a slightly lower DPU compared to last year. But looking at the upside, I suppose, you know, we've managed the interest cycle very well. Most of our borrowing were done five years ago when interest rates were around, you know, inclusive of the margin. We were playing close to around 2% interest costs on average. And with the refinancing, we're now looking at, you know, 4% to 5%. But I think with the final two refinancings, done this year, we would have reached the, I suppose we would have fully moved into the current interest cycle. And with the expectation that, you know, Fed rates will come down hopefully further in 2026, I think this would be the peak of our interest costs in 2026 and maybe 2027. And if, you know, if we can continue to grow on a volume and profitability front, then possibly 2025, 2026 will be kind of like the bottom year of our DPU, and then we can start growing DPU again based on profitability. And looking out for 2026, so far, obviously looking just in January alone, things are still good. Chinese New Year, there's been a slight rush in Chinese New Year, but I think a lot remains to be seen what happens after Chinese New Year. you know, will U.S. pick back up again? You know, some of the, you know, new trade agreement that China will have with Europe, with Canada, will those pan out? Meaning that will other trade continues to climb to offset some of the U.S. decline or will U.S. consumption kind of stabilize with interest rate coming down? All those questions will be on the lookout for in 2026 as well. But, you know, With those trade agreements that China will strike with the various countries, one of the things that we'll be on the lookout for is obviously on imports. Imports have been fairly weak for the last two years just because of the economic situation in China. So import has been on a decline. But I think that with these new trade agreements that China will have with Europe, with Canada, with the rest of the world, I believe that China will not be forced, but they will be looking to boost up their import to honor some of these trade agreements. So we would be looking out for increases in import probably in the second half of this year. And currently there is a large trade imbalance. where our export outweighed our import almost 80-20. So there was a lot of room to grow in terms of the import side, and that's something to watch for both Hong Kong and Yantian. Hong Kong is actually quite suitable for import, and the lower import is actually hurt in Hong Kong. But if I talk about Hong Kong alone, last year, yes, volume has come down. But if I look at the silver linings, of the Hong Kong volume, you would see that export and import coming into Hong Kong has actually remained stable. It has not declined any further like what we have seen in 2023, 2024 after COVID. So the local market import-export has actually stabilized in Hong Kong. What Hong Kong has been losing in 2025 was mostly transshipment volume as well as some intra-Asia volume. But mostly on the transshipment side, as I alluded earlier, a lot of that transshipment either shift to Western Shenzhen or to Yantian. So, you know, whether Hong Kong 2026 will be kind of like the bottoming out of Hong Kong remains to be seen. But I think Hong Kong has been in a transition over the last two years. And not just on the port alone, but on the whole of Hong Kong. I think the economy is starting to rebound a little bit. Our property is on the rebound a little bit. And, you know, we're looking at to whether, you know, we can have Hong Kong kind of like remain, you know, stable this year and try to regrow that business together with Yantang going forward. So I'll pause here, and then I'll hand it over to Ivy to talk a little bit about the P&L, and then we'll move on to the Q&A. Thank you.

Hi, everybody. Basically, if we talk about throughput, as Iris mentioned, trust has done well for 2025. So throughput is at 23 million, 3% better year-on-year, with Yen Teng growing by 7%, but offset by the drop in throughput in Kuai Ting by 6%. If we look at the revenue front, total revenue is at 11.9 billion, 3%. improvement year-on-year. In terms of the segment information, pretty much the split between Hong Kong and Chinese mainland is roughly comparable to 2024 with a 2% point increase in Chinese mainland for 2025. On total capex, it's 445 million, a 20% year-on-year increase or equivalent to around 74 million Hong Kong dollars. The increase is just largely due to operational upgrades that have been carried out both at Yantian and Hong Kong, such as heightening our QCs and just making improvement to support our conversion to using remote RTTCs, et cetera. If we move on then to just look at our financial position in terms of debt, What you'll see in 2025, the short-term debt has increased, but that's largely just due to the two guaranteed notes that we have expiring in 2026, one in March and then one in September time. But if you look at the total consolidated debt, because we have continued with our deleveraging program of repaying $1 billion loan, so the total consolidated debt actually dropped 4% year-on-year, to around 24 billion. And with the increase in cash that Ivo has mentioned earlier, the net attributable debt has actually dropped by 6% year-on-year to around 17.9 billion. As Ivo has mentioned, the trust will be declaring a DPU for the end of 31 December 2025 at 11.5 Hong Kong cents. and we'll be making that distribution payment on 27th of March, 2026. So, lastly, I just want to go through quickly the trust P&L. As mentioned earlier, in terms of revenue, we had a 3% year-on-year increase. In terms of operating expenses, we actually have a 1% improvement, so that gets us to a total operating expenses of around $7 billion. with operating profits having an 8% year-on-year growth to $4.7 billion. As Ivor mentioned, well, despite the fact that we refinanced our debt in February at a higher rate, overall interest costs for the trust actually recorded a 6% saving, largely because of the lower average highball during 2025, which benefited from our highball-based bank loans plus the deleveraging that I mentioned earlier on the $1 billion repayment. So profit before tax is 12% better at $3.8 billion, and then profit after tax is 13% better at $2.5 billion, resulting in a profit after tax attributable to our unit holders at $748 million, 15% better year-on-year. And that concludes our update on our results.

Let's move to Q&A.

We will now begin the question and answer section. Participants with questions to pose, please press star 1 on your telephone keypad, and you will be placed in the queue. To cancel the queue, please press star 2. Mr. Herbert Du from Goldman Sachs. Go ahead, sir.

Hi, Edward and Ivy, for hosting this briefing. Can you hear me?

Yeah, hi, Edward.

Go ahead. Okay, great. I'm Edward from Goldman Sachs. At first, congratulations on this good result, despite a disruption of trade in 2025. Actually, I have three questions. Sorry, I dialed in a bit late, so I apologize if you already covered these questions in your presentation. I'm sorry? Yeah. Yeah, our net profit increased by 15% while DPU is a bit lower than last year. I noticed your presentation attributed to the increase in the reserve set aside in 2025 for Yantian. Could you please elaborate more, and will this trend continue in 2026? And what's your guidance for the range of DPU in 2026? And second question is I know it's difficult to predict the container volume, but I still want to check what's your outlook on 2026 container throughput and ASP. And the third question is on operating expense is down by 80 million year-over-year. What's the main driver? Thank you.

Thank you, Albert. Good questions. I'll start with number one first on the DPU side. And you're correct. As I said earlier, the net profit increase have given additional questions, cash flow, but it is offset by the statutory reserve because of the PRC requirement. What the statutory reserves are are basically, you know, kind of for all PRC companies, they are required to make, you know, a reserve for, let's say, welfare fund, you know, staff fund and all that. Typically, it's around the 10% range. So every company does it in China. But because we are a Sino-foreign joint venture, we have been actually exempted previously from making these reserves. So the reserve is actually a percentage of the registered capital that every company has to make. So that's the first job we have to do. But because of the change in the company law, in the PRC, Yantian, even though it is a sign of foreign joint venture, is no longer exempted from making the statutory reserve. What the statutory reserve are is basically limitation of the amount of dividend that you have that can be given out to shareholder and the cash will have to remain at the company level rather than distribute out to the shareholders in that sense. And so every year, we do expect that going forward, we'll have to make that reserve, which is around 10% of the profitability, net profit that we have every year. And this year, we expect the amount somewhere around $200 million. I think that $200 million will have to continue until we reach the statutory requirement of 50% of the registered capital. So that will probably take around 10 years or so. So if you look at around 200 million Hong Kong dollars of cash flow that we are unable to distribute out from Yen Tien, that would translate to roughly around 2, 2.5 cents. But we have been able to offset some of that decline, 2.5, by, you know, as Ivy said earlier, we have managed our interest costs better than we have expected because highball is low this year compared to the U.S. rate. So we have actually benefited from that. But high board actually has climbed back up, and therefore we do expect some of that savings that we have interest to be not available in 2026 as well. So hence, you know, overall net-net, if you take a look at, you know, the increase profitability, you know, a little bit less interest, but offset by that statutory reserve. Hence, you know, our actual distributable cash is only about 11.5 cents. In terms of what I see next year, a couple of factors. Number one is interest costs, whether, you know, the Fed rate will reduce. The Fed rate will be an important factor, number one. Number two is obviously we have two refinancing to be done this year, and the ability to refinance at a reasonable rate will have some impact on that DPU assessment. And number three, obviously, is the profitability. And I'll answer question number two later on. And finally, you know, depending on the overall market, you know, the trade war, some of the things that we're watching for is the reopening of the Red Sea, whether the, you know, the Red Sea conflict will be able to resolve and how that resolution will impact trading will have a big impact on our volume as well. So that's something that we're watching out for as well. So those are the couple of factors that I looked at that may impact DPU next year. But overall, I'm looking at somewhere between 11 to 12 cents. And, you know, my personal target is try to kind of maintain that 11.5 if I can, despite, you know, having that 200 million reserve going into 2026. But if we can have volume growth as well as managing interest costs better, then there may be a chance. So that's your question number one. In terms of question number two, in terms of, you know, obviously it is quite difficult to forecast that the world is extremely volatile, especially with, you know, the tariff policy and, you know, the various new trade agreements happening around the world. But overall, I mean, if we look at industry as a whole, for baseline every year, I do look at a low single-digit, maybe 1% to 3% type of volume growth every year. And I'm still looking at that. That's something we do try to achieve every year, be it from transshipment, be it from import or export. And the shipping market in general tend to look for that type of growth as well. So that's in terms of growth in Yantian. And obviously Hong Kong, some sense of stability in Hong Kong would be good enough for me. In terms of ASP, ASP is affected by a couple of factors. Most of our ASP growth is obviously driven in Yantian. But if you talk about ASP, because the renminbi fluctuation will have an impact on ASP, that's something to watch for. And renminbi fluctuation is something that we cannot forecast. Second of all, it has to do with the mix, the trade mix. Whether the growth is focusing more on U.S.-European trade or whereas the growth is focused on the intra-Asia trade and Middle East trade or the growth happening in the transshipment trade all have an impact on ASP because the margins in U.S. and Europe is a bit better, whereas the margins for transshipment obviously is lower and that affects ASP as well. These are the factors. But overall, are we seeing underlying price and growth? Yes, we are trying to recover a cost increase through tariffs. That's something we always do on an annual basis when we negotiate a contract with shipping line. But again, the underlying ASV may increase, but whether renminbi increase or decline or whether the different mixes increase or decrease will affect the overall ASV. but I do see a lot of ASP increase. And that's not something that only Yantian is doing. If you look at ports, north and eastern port in Shanghai and Ningbo, my understanding is most of those ports are looking for a pricing increase, and some of them to the tune of over 10% because they have not had ASP increase over the last couple of years. And Yantian being kind of a price leader in the market where we price according to supply and demand, Obviously, our competitor rating the pricing is actually good for the overall market. So that's something I would say ASP is definitely not overly pessimistic. Finally, on the operating expenses side, most of that saving is not really from the Yintang side, more from the Hong Kong side. Because Hong Kong, obviously, with the volume coming down, we have been having some of the facility kind of underutilized. So we've been saving a lot of operating costs, shaving a lot of costs as a result of some of that volume decline. So most of that operating cost is mostly from the Hong Kong side. Obviously, if there are more downside risks on Hong Kong side, we'll look to further shave costs. But again, if Hong Kong can stabilize this year, then I do not see that we would be expecting kind of continuing reduction of the cost.

Thanks. Just a follow-up on the ASP. Yeah, you mentioned the underlying ASP may increase for Yanqian. That already factoring the Fox makes change. I mean, Yanqian now has more exposure to transshipment volume, maybe, which may have a higher, a lower ASP, actually. So you forecast ASP to grow is already factoring the change, mix change?

Okay, so I cannot really forecast mix change. When I comment on underlying ASP, it's just underlying tariff of the shipping lines. That is kind of like inflation adjusted or CPI adjusted or even low single-digit increase on some of it. How the renminbi change or how it makes change is difficult to forecast, especially individual trade. Will Europe, again, what I said earlier with the various trade agreements happening, will trade between China and Europe increase? and how fast that increase will. Will it offset, will it be faster than some of the transshipment or MPs increase is really hard to forecast. So I don't typically forecast mixed change or RMB change. I only forecast kind of underlying ASP change. And so the positive side is just on the standalone tariff.

Okay, okay, got it. Very clear. Thank you very much. Thank you, Everett.

Good evening.

I hope I'm coming through well. So a couple of questions for you, Ivor, and then a couple of questions for Ivi. Firstly, if you could help us understand how the throughput has trended so far this year, whatever you possibly can share on how the trends are in Yantian and in Hong Kong.

Okay, so Yen 10, as I said overall, Yen 10 grew about 7% last year. The first half was strong. If you look at the last results that we had, first half was quite decent, mostly because of kind of front-loading to avoid the tariff. So we had a kind of bumper first quarter when people kind of rushed out the volume ahead of the tariff. Second quarter kind of trend in line. But third quarter was actually quite slow. Third quarter was traditionally the peak season, but I think there was a lot of uncertainty as to, you know, what the Trump administration was going to do. There was a lot of uncertainty. Third quarter was quite slow. But I would say that fourth quarter was actually, in some sense, surprisingly strong. Not so much on the U.S. trade side, but, you know, Europe was a bit of a surprise. I think overall Europe grew double-digit in the fourth quarter, helped offset some of that decline that we saw in the U.S. So, you know, it's quite volatile right now. Every quarter tracks differently just because, you know, depending on, you know, shippers now kind of take advantage of, you know, windows where they fail to save and windows where there's a volatility. And they try to avoid it. It's very difficult to forecast. But so far, as I said earlier, January is looking okay. Pre-Chinese New Year, there was still a rush in Tian. But again, hard to say what's going to happen after Chinese New Year. Shipping lines are, I wouldn't say pessimistic because it varies. Some shipping lines are a bit more optimistic. Some are a bit more pessimistic. There is not a lot of direction at this point in time. But I am, you know, a bit more confident, you know, the other markets will fare better than the U.S. market. But that can change in a flash. That's for Yan Tian. Hong Kong, as I said earlier, Hong Kong is actually stabilizing on the import-export side. We haven't seen decline last year on import-export. But Hong Kong has seen most of the decline on the transshipment side. And as I said earlier, most of the transshipment, is either transferred to Yantian or some of them went to Nansha and Shekou. So Hong Kong did see continuing decline in transshipment. The lucky side of it is because transshipment tends to be lower margin, it doesn't hurt our bottom line as much and we have been able to pick up the transshipment loss in Yantian. So overall, the trust overall didn't suffer, but Hong Kong is still negative on the transshipment volume decline side.

Okay, that's very helpful. My second question to you, Edward, is about the Yantian East expansion. If you can provide some update on where we stand on the project, when do you expect it to commence, and if there are any further capital commitments from the trust side towards this project?

Okay. On the esports, yeah, I forgot to mention that. Esports continue to be on track, on target. You know, as I said on I think the last call as well, we are slated for trial operation in the first quarter of 2027. So we're still on target for that. And, you know, we've already completed all capital injection requirement into esports. So there are no for the capital requirement from the trust.

Okay. And then how much you could remind us because this has been a project which has been in the works for quite two years. When you start off in 1Q27, what is the kind of capacity which will come through in early phase and how do you expect the ramp-up to phase through over the next few quarters after it commences?

Sure. Just a quick update on Eastport. It's actually free additional berth in the eastern side of Yantian. So roughly around 3 million additional capacity. If you look at Yantian last year, it handled around 16 million TEU, which is a record high, by the way. And so that will add capacity by about 3 million. So when we finish the whole Eastport expansion, we'll be looking at kind of like a nominal capacity around 20 million. which we're handling 16 right now. We will be rolling out the first birth next year. So roughly around 1 million additional capacity with each birth. And then over the next two years, we'll expand and release one birth additional every year. And to help you think about how I think about capacity, right? If you think about Yan Tian, last year we were doing 15 million. And this year we grew 7%. And we actually grew 1 million TEU this year. That's actually one requirement that we need in order to cater to the demand. So that just gives you a feel of how we think about capacity increase.

Okay, that's helpful. And then maybe for Avi, if you could help us understand what the capex will be this year for the trust and where do you expect to expend it? How much of that will be maintenance? I know in the past you've mentioned that about $500 million is the maintenance capex. irrespective of how trade spans out. But if you could help us revisit those numbers as well.

I think, as you mentioned, we are currently still expecting maintenance capex to be around that 500 million ballpark figure. So this is what we will, you know, aim to maintain. So that's, yeah, so it's in line with the guidance that we have given out in the past for 2026 as well.

Okay, okay. And finally for you, you mentioned in the presentation that about 52% of the debt is fixed rate. Now, of the floating rate debt, how much of it is more reliant on the high bar versus the U.S. policy rates? Or it doesn't matter and just depends on the overall interest environment?

Well, I think that depends on the overall interest environment. But currently, all our floating rates are actually highball-based loans.

Okay. The rest are fixed as U.S. dollar. And the reason why we've swapped some of the fixed rate U.S. into highball is just because highball was a lot lower than the U.S. rates last year, and we benefit from that. But with highball coming back up, we will have to manage the spread carefully. But for us, there is no exchange risk on either front. So we swap just more opportunistically. And especially, we have actually moved away from a higher fixed proponent compared to before. Before, we were closer to 75%. We're moving lower down into the 50% range just because, you know, I think overall, I think the market agrees that the current interest rate environment is past the max level. and we could potentially be looking at slightly lower interest rate environment. So it would be beneficial for us to kind of maintain slightly more port floating in our portfolio.

Okay. That's very helpful. And maybe if I can just question one more question. In the presentation, you did mention about headwinds to Chinese exports from the Mexico tariffs. Now, we know about the U.S. relationship, but there were first – Mexico. Is that a significant route or is it still more U.S. and Europe exposed? And if you could also remind us what the mix now is or in the second half it was for the trade exposure to Europe versus the U.S. trade lane.

Well, first of all, overall, U.S. can change your account for about 30 to 40 percent export. With that number now closer to the low 30s compared to the high 40s before. Europe traditionally is somewhere around 25% to 30%. I think it's creep up one or two percentage point only. But transshipment has actually picked up a lot. Transshipment in the end went up quite a bit last year. So I think it went from around 15% to around 20% right now. Yeah, 20 to 25. So the pickup is mostly on the transhuman side. And that affected ASP a little bit, you know, kind of alluding to Robert's question earlier. In terms of the Mexican tariff question, you know, when the U.S. imposed tariff directly on the country of origin in China, you know, Chinese exporter tried to, well, not circumvent, but they have increasingly increased set up their new manufacturing bases closer to the destination, be it Mexico, Vietnam, or some closer to Europe. So these tariffs that are put onto kind of intermediate manufacturing locations like Vietnam and Mexico will indirectly affect trade to the U.S. So that's why we talk about the headwind, but it mostly affect the U.S.

than anything else.

But as I said, European trade so far, we haven't seen a negative. In fact, we have seen positive out of the European trade. I think partially because Europe, instead of buying from the traditional European exporter, sorry, buying from the traditional European retailer, they're actually buying more from the e-commerce companies in China just because it's cheaper there. That has attracted a lot of European trade of the Yen Chien where we handle a lot of e-commerce business to Europe.

Okay. Okay. That's excellent, Carlo. Thank you very much. I'll step back for now, and I'll join back if I have any further questions. Thank you, and have a great evening.

Thank you. Mr. Potiu from HS County Research. Please go ahead, sir.

Hi, thanks so much for the presentation. Just some questions on the fluidity of the supply chain. Can you just elaborate a bit? When you mentioned the gradual resumption of services on Suez Canal, is that what the major liners are preparing you for? And could you maybe elaborate on the impact if it does really open? Is it just that there'll be a short-term congestion in Europe? That is what worries you? Thank you.

So the question surrounds is what's going to happen with the Red Sea situation resolved? So if you look at some of the news in the market, some shipping lines are already testing the Red Sea to see whether it is safe to pass through the Suez Canal already. Some lines are trying not. Just to kind of dial back a little bit, right now, currently, almost all shipping lines from the Asia-Europe trade goes through the Cape of Good Hope in South Africa, and that adds quite a bit of additional transit time into Europe. So that absorbs quite a bit of capacity out of the market, and that allows the shipping lines to maintain trade rates that they have enjoyed over the last year or so. I suppose the concern here is that when the RECI does reopen, and the Suez is passable, then at that time there would be ships going through around the Cape of Good Hope, but at the same time there would be ships racing from Asia through the Suez into Europe. So there would be two sets of ships because the slot cost for shipping lines going through the Suez is going to be cheaper, so the margins for shipping lines is better, and so people Ideally, when it's reopened, everybody will rush through the Suez to try to reach Europe ASAP. I suppose, as you alluded to earlier, the concern is that, you know, what would it do to the ports on the European side? Currently, I think, generally, there are port congestion in Europe already, even with the Red Sea situation. So the concern is once the Red Sea opens, and there is a race to Europe through the Red Sea to the Suez, that would cause major disruption to the ports at the destination in Europe. So that is a concern of mine, obviously. And, you know, whether the shipping line can, you know, withhold the capacity and not clock up the ports in Europe remains to be seen. But if there is a congestion it could be a substantial one because the ships going to Europe are really the largest vessels in the world. So even, you know, five or six or even ten vessels can potentially clock up the system like they did during COVID for an extended period of time. And how that will impact the supply chain in terms of how you say the fluidity and whether some of that congestion will start to come back and and hit Asia, something that I'm on the lookout for. But right now, it's really difficult to foresee when and if that will happen. The likely earliest that RSEI will open will probably be in the second half of this year, but that is an event that we'll look out for.

Thanks so much for the color. My second question is, I think in the prior call, you did allude that shipments to the U.S. by your e-commerce customers, they prefer to use SHIB because it's cheaper, even because of the high tariffs they're using SHIB. Do you still see that phenomenon or that has maybe passed?

Well, I suppose what I saw in the second half, I suppose, you know, obviously U.S. trade has declined. So overall it declined 10%. But I think if you look at South China versus the rest of the China, especially in Northeastern, I think the decline would be higher than 10%. I don't know exactly the numbers, but as far as I know, I believe that the decline is a bit more substantial than 10%. And the reason for that, I believe, is that e-commerce, because of our focus in e-commerce in the southern part of China, especially in Tiananmen, that has allowed us to be a bit better And, you know, e-commerce continues to do well. That segment of market, even the second half, continues to do well. Obviously, you know, that can change depending on, you know, the tariff situation and whether they tighten the tariff on the, you know, small packets. But for now, that segment of market continues to do okay, quite well, actually.

Thanks so much. I guess my last question is, I think the first time, Poitier was mentioning some optimism over imports. Is it the similar sentiment that you get from the shipping lines or I guess it's based on more of your own analysis, I think.

Right. On the import side, it's more of my own than anything else. We have been, you know, obviously with the trade imbalance We've always felt that China has more room to grow on the import side, especially import being a fairly small proportion of our business. But the relative margins for import and with the trade imbalance, shipping lines is much more proactive in terms of pushing for imports as well. And from my read on the macro trade, with all these trade agreements that China is hoping to sign with European countries, I would expect that there would be a quid pro quo with a certain level of imports coming into China. But obviously, a lot of them depending on the recovery of the Chinese economy, but I'm a bit more hopeful on that front. So it's more of a personal, but I think shipping lines themselves, if there are imports, they're happy to take the balance. because for them, you know, empty, you know, full out, empty in is not good for business.

Thanks. Just a quick follow-up on the earlier question. I'm not sure if you, or maybe you do not disclose the amount of shipments that goes to Mexico directly. Just something you don't say.

Mexico directly. I don't have that number with me, unfortunately. Typically, for us, the shipments Latin America trade is relatively small. I think it's somewhere between 10% to 15% only, at most 10% actually.

But at the same time, I think in one of your statements, you mentioned Mexico might still impact you. But if the direct shipments are small, then how does it kind of negatively impact you?

Well, I think what we're seeing is that the growth of the Mexican trade has been quite strong over the last couple of years. So that growth will slow down. That's what we're worried about.

Okay, sure. Thank you very much for taking my question.

Thank you. This is Huang Yijie from HSBC Investment. Go ahead, madam. Hi.

Yes.

Nope. Can you hear me?

Oh, yeah, yeah, yeah. Please, go ahead.

Okay. Yeah. Thanks very much, management, for your detailed explanation and presentation earlier. I have two small questions coming from my side. First, I see end of last year you have announcement saying that you need to sell back land to Shenzhen YTLAS for the redevelopment of the region for around 15 million. So I'm wondering how do you see this? First of all, I'm wondering what's the use of this land in the past? and how do you see this cell may have impact for the expansion of your volume capacity in Yan Tian, and do you expect any other similar land arrangement in the midterm? And second, my second question is that for next year or midterm, should we expect similar debt reduction as this year, which is around one billion debt reduction, and will this be impact by your of increase of CapEx like what we see for this year? Thank you.

Thank you. So I'll take the first question, and then Ivy can talk about the debt repayment. In terms of the land that we sell back to the Shenzhen government, that piece of land is for, I think I talked a little bit about last year. Maybe I should repeat that here. Intermodal is something that is a strategy for Yantian for the next five to ten years. Currently, we do have a dedicated rail link into Yantian in South China, where we're the only one that has an on-dock rail link into Yantian. But rail business only accounts for a fairly small proportion of our business, to the tune of around 300,000 TEU, and we do 15 million every year, so it's quite small. But as I said, with China moving a lot of the coastal areas, manufacturing into the inland, particularly in Chengdu, Chongqing, Wuhan area. Increasingly, I believe intermodal will be kind of the future of where the share of the market in terms of volume, the competition will be. So the development of the rail link becomes quite an important part preparation for Yantian if you over the next 5-10 years. But because rail business tends to be heavily subsidized business, it is not a profitable business. So the Sun Yat-sen government has agreed to take back the land that we have and they would be the one investing in upgrading the intermodal facilities that we have in Yantian. So they're I think they're investing to tune around 7 million RMB in order to expand the rail link from roughly around 300,000 TEU to potentially to about 3 million TEU by 2029 if the rail upgrade is fully completed. Obviously, it's going to be done in different phases going from maybe 300,000 to maybe about a million first and then slowly ramp up to eventually 3 million. So still, you know, compare 3 million to 15 is still not a substantial number, but it is where the future growth for Yantian is, especially when I said earlier that we are completing the e-sport development where we have 3 million additional capacity. So the rail becomes kind of like an integrated strategy in terms of, you know, expanding Yantian reach from currently around 1,000 kilometers to about 2,000 plus kilometers inland. So it is a strategy, and that's why we're selling that piece of land. So, yes, we will continue to have, I think we already announced already, a piece of land that we have sold. that we would have an impact to us this year. We have some gain. This year we will be booking. But the important part of that selling piece of land is more the long-term intermodal strategy for China, not just for India, but overall for China. And I think I talked about it a little bit before. It's exactly what the U.S. is doing. If you have shipment into L.A. and Long Beach on the West Coast in the U.S., The rail becomes quite important of shipping that goods into the Midwest in the U.S. So I think for China, it's the same thing. Again, you talk about export coming in, but in future, there will be more import coming into Hong Kong and Yantian, connecting to rail to the inland part of China as well. And that's something, for me, upgrading the rail facility is paramount to capturing that particular growth market over the next five, ten years.

Hi. In terms of your second question, obviously, depending on how the operations pan out in 2026, it is still our intention to continue with our to leverage program to do the $1 billion repayment in 2026.

I understand. Thank you very much, management, for the explanation.

Thank you. And thank you for joining everybody tonight.

Ladies and gentlemen, as there are no further questions, this concludes today's conference call. Thank you for your participation. You may now disconnect.