Stock Code: 600057 Stock Abbreviation: Xiamen Xiangyu
Xiamen Xiangyu Co., Ltd.
2023 Interim Report (Summary)
I. Industry Analysis and a Comprehensive Overview of Company's Core Business Operationsduring the Reporting Period
In this section, we will discuss and analyze the industry in which the company operates in two parts:
"Analysis of the industry's operating conditions during the reporting period and future of industrytrends" and "Company's business model."
1. Analysis of the Industry's Operating Conditions during the Reporting Period and Future ofIndustry Trends
In the first half of 2023, the global arena remains tumultuous and ever-evolving. Globally, majoreconomies experienced sluggish growth, high level of uncertainty of the macro environment, and aslower-than-expected recovery in international trade. The adverse impact of global environmentchanges has escalated. On the domestic front, China faced some challenges in terms of exportgrowth and business investment confidence, which were compounded by various difficulties,including cyclical and structural contradictions. Additionally, weak domestic demand hindered thesmooth progress of the economy, resulting in a relatively sluggish process of economic recovery.
On the supply side, there has been a downward trend in the YoY profit growth of industrialenterprises of a certain scale, with limited monthly recovery. The manufacturing sector continuedto face structural deflationary pressures, and the issue of overcapacity remained unresolved. On thedemand side, weak external demand and a slow recovery in domestic demand resulted in an increasein cautious attitudes and behaviors, such as adopting a "wait-and-see" approach. Additionally,Chinese companies that heavily rely on resources and labor gradually shifted their production basesoverseas, leading to a partial diversion of domestic demand to international markets. In the realm ofsupply chain services, there was a noticeable decline in the consumption of goods by manufacturingclients, and this downward trend is likely to persist in the third quarter. However, there may be aturning point on the horizon. Furthermore, within the supply chain services process, we observedthat larger manufacturing clients were gradually stabilizing and improving their production andbusiness prospects, while small and medium enterprises still held weak expectations. Pressing issuessuch as increasing accounts receivable, prolonged payment cycles, and rising debt ratios remained
prominent.
Looking ahead, some industries will still be under pressure from continued downward cycles.However, potential recovery in demand may be on the horizon as stable growth policies are alreadyin the pipeline. As inventories gradually clear and supply-side capacity resumes, it will createfavorable conditions for bulk commodity supply chain service companies to restore their serviceecosystems. This will enable them to leverage their scale advantages and improve the profitabilityof the bulk commodity supply chain industry.
2. Industry Development Trends
In recent years, due to the disruptions caused by global geopolitical shifts and macroeconomicfactors, the speed of changes in domestic policies and the business environment has beenaccelerating. Additionally, with the domestic market approaching saturation, increasing labor costs,and supply chain outsourcing driving relocation, many leading manufacturing companies areshifting their focus towards overseas markets. In this new landscape, it becomes increasinglyimportant for bulk supply chain service providers to prioritize the safety and stability of theirservices. However, effectively leveraging their model, technological, and resource advantages toestablish an internationalized supply chain service system and better meet the needs ofmanufacturing companies in terms of internationalization, safety, efficiency, and etc., becomes ofutmost importance.
Specifically, we have noticed the following distinct trends:
(1) The concentration of China's bulk supply chain industry continues to rise, and leadingcompanies achieve contrarian growth.
Over the past five years, the market size of China's bulk supply chain has remained stable at around
40-50 trillion RMB.
Despite sluggish domestic demand and a slowdown in industrial productionand exports in the first half of 2023, top-tier bulk supply chain service companies have effectivelyutilized their resources and services to actively expand their distribution networks and expand theirmarket shares under the downward cycle, highlighting the dominance of these leading players inthe industry.
| Figure 1: Market Size and CR4 Market Share in China's Bulk Supply Chain Industry | Figure 2: Company Revenue and Market Share in China's Bulk Supply Chain Industry |
(2) The Chinese bulk supply chain service industry is poised to enter a new era of globalization,unlocking the industry's "second growth curve."
As the domestic population dividend diminishes and the market reaches saturation, themanufacturing industry tends to shift towards emerging markets along the Belt and Road Initiative,such as Southeast Asia and Africa. These markets offer abundant natural resources and competitiveadvantages for early market entrants.
As the "Belt and Road" initiative continues to deepen, the pace of China's manufacturing industryexpanding overseas will accelerate, which will further intensify the trend of global supply chainrestructuring. Domestic bulk supply chain service enterprises, on the basis of their solid presence inthe domestic market, are now speeding up their international expansion. This will helpmanufacturing companies to sail into international waters and pave the way for industry leaders to
The market size of the bulk supply chain service industry is determined by the combinationof revenue generated by major industrial enterprises and the value of bulk imports.
unlock their "second growth curve".
(3) The evolving needs of manufacturing enterprise customers will drive the iterativetransformation of the supply chain industry's service model.
Customer demands are shifting from single-category and single-link services to a more diverserange of offerings, including combined supply, integrated links, expanded supply chains, andregional synergy. Consequently, the ability to manage diverse product portfolios, provide variedservice offerings, and establish robust logistics infrastructure becomes vital. A core differentiatingfactor lies in the "physical-trade linkage," which combines multi-product operations withcomprehensive integrated services, serving as a key driver of competitiveness.
Against this backdrop, supply chain enterprises equipped with comprehensive supply chain solutiondesign capabilities and integrated services are well-positioned to expand their involvement acrossmultiple stages of the value chain. By efficiently allocating resources and leveraging networkedlogistics services, they can deepen customer loyalty, enhance market shares, and improve profitmargins.
| Figure 3: Changes in Customer Demand and Evolution of Service Providers |
II. Business Model
The Company focuses on the core demands of manufacturing enterprise customers and continuouslyprovides "comprehensive, multi-level, wide-ranging" services. By optimizing product combinations,upgrading business models, and improving profit structures, the Company strives to be at theforefront of industry in terms of model leadership.
1. Product Combination
Based on customer needs and its own business philosophy, the Company selects products based onthe following criteria: ① Strong liquidity and easy monetization; ② High standardization andeasy storage; ③ Large demand, long industrial chain, and ability to provide comprehensiveservices at multiple stages. The Company currently mainly deals in bulk such as metallic minerals,agricultural products, energy and chemicals, and new energy, covering six core categories: "ferrousmetals, aluminum, stainless steel, new energy, coal, and grain."
The Company continuously enriches its product portfolio and focuses on important niche categoriesto establish scale advantages and market influence. It cultivates the ability to provide acomprehensive package of bulk supply and adjusts the product composition dynamically based onindustry cycles. This enable the Company to maintain a balanced product structure in differentcycles, resulting in better growth potential and hedging capabilities.
| Figure 4: Breakdown of Combined Futures and Spot Gross Profit in 1H23 |
2. Customer Structure
With the advantage of our brand and superior services, our company has defied market challengesand successfully expanded our customer base using a dedicated ground promotion team. In the firsthalf of 2023, we achieved a significant YoY increase of 453 active customers, bringing the total to9,886.
| Figure 5: Number of Active Customer Base for the Company |
Over the past few years, the company has been continuously optimizing its client portfolio, with afocus on increasing the proportion of manufacturing enterprise clients. As of the end of the first halfof 2023, manufacturing enterprises accounted for more than 50%/60% of the Company's client baseand total service volume. Notably, the service volume for the manufacturing enterprises of the newenergy supply chain accounts for more than 90%, and that for the manufacturing enterprises of theferrous metals, aluminum, coal, and grain supply chain accounts for more than 60% respectively.
3. Operating Mode
In stage 1.0, the Company transitioned from a "Single-point Service" model to an "IntegratedService" approach, offering one-stop comprehensive services such as raw material procurement,finished product distribution, inventory management, warehousing and logistics, and supply chainfinance. Through customizing and providing procurement and sales plans, cross-regional
transportation, and other comprehensive services, the company successfully resolved the issue ofspatial and temporal disparities for bulk commodities.
A prime illustration of this model is the virtual factory initiative, wherein the Company plays a full-fledged role in the critical manufacturing supply chain, furnishing customers with raw materialprocurement and supply, product distribution, as well as ancillary services such as logistics, finance,consulting, among others, thereby generating profit from the services we provide.
In stage 2.0, the Company had established customer loyalty and channel advantages by offering"Integrated Services" in a specific industrial chain segment. Building on this success, the Companyextended its "Integrated Services" upstream and downstream along the industry chain, and initiated"Full-industry Chain Service Model". The model expands range of goods and growth potential.
In stage 3.0, after forming service and advantages of industry research throughout the full industrychain, the Company capitalized on the opportunity to enter the productive manufacturing links withvalue-adding potential, forming an industrial chain operation mode of "Supply Chain Services +Production Manufacturing", further improving the profitability of comprehensive revenue andsmoothing cyclical fluctuations.
Figure 6: Evolution of the Company's Operating Model
In the 4.0 phase, the Company has established a diverse range of comprehensive service capabilities,full-industry chain service capabilities, and industrial chain operation capabilities in the previousthree phases. These services are provided either separately or in combination to cater to the needsof customers from various industries, regions, scales, and business natures.
In order to cater to the needs of our customers, the Company has established a range of servicecapabilities, including networked logistics, digital supply chain, risk management, global resourceintegration, as well as multidimensional industrial research capabilities and dedicated promotionservice teams. These capabilities are interwoven, connected, and integrated onto a platform, whichis continuously evolving into the “Xiangyu Smart Supply Chain Comprehensive Service Platform”.Through leveraging a vast array of service cases and data gathered from specific business scenarios,our platform gains a profound understanding of the demands and needs of manufacturing enterprisecustomers. This enables us to swiftly analyze and integrate this information to recommend suitableproducts and services. By tailoring and customizing our output to each individual client, we deliverpersonalized supply chain solutions that are perfectly attuned to their unique requirements.
The “Xiangyu Smart Supply Chain Comprehensive Service Platform” has a core advantage in thatit combines diverse commodity supply with efficient logistics services through its unique “trade-logistics linkage” system. By seamlessly integrating with the purchasing and sales systems ofmanufacturing enterprises, the Company utilizes multimodal transportation logistics capabilities,multi-channel commodity supply and sales channels, and big data mining and analysis to accuratelypredict customer inventory levels, match supply channels to products, and achieve seamless regionalwarehouse cross-region distribution and cross-period replenishment. This enables us to accuratelyand efficiently resolve all kinds of “time and space mismatch” issues, making us a leader in theindustry.
4. Profit Model
The Company places great emphasis on service revenue and scale-driven profitability, establishinga solid foundation for stable profitability. Through regional expansion, customer, and productcategory diversification, as well as the implementation of service overlays, the Company has
achieved continuous and steady growth in its operational performance. It also capitalizes on pricedifferentials to generate profits during periods of volatility in commodity prices.
To enhance service revenue levels, the Company engages in direct upstream procurement andintegrates full-chain services, thereby improving circulation efficiency and reducing costs withinthe supply chain. The Company also focuses on achieving scale-driven profitability by maintainingrobust growth and implementing synergies between physical and trading activities. Leveraging itsextensive customer resources and extensive logistics network, the Company enhances itscapabilities in industrial research and analysis of commodity supply and demand. It employsscientific position management to optimize income from price differentials.
Table 1 Profit Structure and Definitions
| Source of Revenue | Interpretation | the Correlation with Commodity Prices | |
| Service Profits | By leveraging the benefits of platformization and scaling operations, the Company offer customers comprehensive services across the entire industry chain. The Company offerings include procurement and sales, processing, logistics and distribution, supply chain finance, and information consulting, for which the Company earn service fees (including Financial Service Revenue). Through the “Yuliantong” digital supply chain service platform, the Company upgrade supply chain finance service model, charging customers stable service fees without assuming guarantee responsibilities. | Weak Correlation | |
| Transaction Profits | Scale Collective Bargaining Profit | Leveraging our extensive business volume, we strive to achieve cost advantage through centralized procurement and specialized operation, thereby reducing operational costs across all segments and contributing to trading revenue. As the Company continue to enhance our scale advantage and | Weak Correlation |
| Source of Revenue | Interpretation | the Correlation with Commodity Prices | |
| professional expertise, the sensitivity of the Company‘s trading revenue to price fluctuations in commodities has also decreased. The Company strive for consistent and sturdy growth, improving revenue levels through physical-commerce and trade-trade linkage. | |||
| Profiting from Price Disparities | By leveraging the Company‘s expertise in professional analysis, the Company conduct trades by studying the trends of commodity price changes over time and the spatial differences in pricing across different regions to generate profitability. With a vast customer network and robust logistics infrastructure, the Company enhances its capabilities in industry research and supply-demand analysis, strategically managing positions to maximize returns. | Strong Correlation | |
III. Analysis of Core Competitiveness in Reporting Period
1.Networked Logistics Service Capability
The Company, a national 5A-level logistics enterprise, has cultivated three major logistics operatingentities (Xiangyu Express, Xiangdao Logistics, Xiangyu Agricultural Products). It possesses a teamof over a thousand professionals specialized in logistics services, with a focus on market andinternationalization.
The Company has taken the lead in constructing a networked logistics service system that revolvesaround “highway, railway, waterway, and warehouse” linking markets both domestically andinternationally. This system includes a railway transportation network that connects the east andwest regions and links the north and south regions, a highway transportation network that radiatesthroughout the country, a waterway transportation network that extends from major domestic portsto the “Belt and Road” regions, a warehouse cluster that covers the coastal areas in the east and thebulk distribution areas in the central and western regions, and international logistics channels suchas international chartering and international freight trains that link overseas markets. This enablesthe Company to provide high-quality, end-to-end, customized logistics services for bulk, as well asmultimodal transport comprehensive solutions.
By establishing multiple multimodal transport routes such as cross-province circulation ofaluminum products,” “north-to-south grain transportation,” “west-to-east coal transportation,” and“north-to-south coal transportation.” The Company enhances the operational efficiency and marketcompetitiveness of its logistics service system. The networked logistics service system is one of thecore capabilities of the Company in serving manufacturing industry clients and also serves as animportant cornerstone for the Company’s cargo rights control and business digitizationtransformation.
Table2 Logistics Resources and Capabilities
| Category | Resources Capability |
| Railway | 11 railway cargo stations (10 self-owned and 1 managed), covering major commodity distribution hubs in the central and western regions. It is supported by 47 dedicated railway lines, approximately 2.5 million square meters of container yards and warehouses, and around 30k self-owned containers. The annual transportation capacity exceeds 35 million tons, ranking among the top in the industry. It has also formed high-quality transportation routes for coal and aluminum products, such as “Shandong/Henan-Xinjiang” and “Shaanxi-Yunnan/Guizhou/Sichuan”. |
| Highway | The Company possesses a fleet of around 1,000 self-owned transport vehicles and its network freight platform integrates more than 80k vehicles from the market. During the reporting period, it successfully transported over 11 million tons of goods. |
| Waterway | The Company has established strategic partnerships with reputable port and shipping companies such as China Merchants Port Group Co., Ltd., Shandong Port Group Co., Ltd., COSCO, Tianjin Port Group Co., Ltd., The combined domestic coastal and Yangtze River transport volume reached approximately 15 million tons during the reporting period. Moreover, the Company owns a multipurpose vessel and its network water transportation platform includes over 850 vessels from the market. The commissioned transport volume exceeded 7 million tons during the reporting period, showcasing an optimized water transport capacity configuration that combines both self-owned and cooperative resources. |
| Warehousing | The top 7 grain procurement platforms boast a combined storage capacity of over 13 million tons, accompanied by the presence of 9 dedicated railway lines. The company’s 46 warehouses (self-owned or leased) cover an expansive area of approximately 1.6 million square meters. Furthermore, there are 8 yards, with a cumulative expanse surpassing 500k square meters. |
| International Logistics | By leveraging global capabilities in bulk and break-bulk international chartering and international rail logistics corridors, the Company are establishing the China-Indonesia logistics corridor (targeting a cargo volume exceeding 7 million tons during the reporting period), the China-Vietnam & Thailand logistics corridor, and the China-Europe bi-directional transportation corridor. Through these channels, we aim to enhance our international multimodal transportation capabilities and strengthen our overseas localized logistics services. |
Figure 7: Company’s Nationwide and International Networked Logistics Service Ecosystem
2.Digitalized Supply Chain Service Capability
The Company is focused on three core goals: expanding the incremental market, improving serviceefficiency, and elevating the business model. Leveraging vast business data, extensive customerresources, and diverse application scenarios, the Company is building an intelligent informationtechnology system. The digitalization efforts of the Company can be categorized into three levels:
Digitalization of logistics infrastructure: The Company is actively implementing digitaltransformations in warehouses to create a smart logistics service platform that improves logisticsmanagement efficiency, enhances cargo control capabilities, and integrates multi-modaltransportation systems.
Digitalization as a driver for business model innovation: Building upon the smart logistics platform,the company is developing and constructing the "Yuliantong" digital supply chain service platformto effectively connect funding partners with customer demands. Additionally, in collaboration withthe Alibaba team, the Company is connecting various stages of the grain industry to create an"agricultural industry-level internet platform" with a focus on the "grain planting industry alliance,grain warehouse alliance, and grain circulation industry alliance".
Digitalization empowering operational efficiency: Through an integrated support systemencompassing modules like financial control, human resources management, customer relations,risk management, and equipment and asset management, the Company is providing comprehensivesupport for business operations. Utilizing enterprise management analysis systems, customeranalysis, and large-scale data operation systems, the Company is extracting and analyzing vastamounts of business data to serve and support business decision-making.
Figure 8: "Yulian Tong" Digital Supply Chain Service Platform
3.Systematic Risk Management Capability
The company firmly grasps the foundations of risk control by targeting manufacturing enterprisesas its core clients and focusing on highly liquid, easily convertible, standardized, and storable bulkas its main products. It adapts the composition of these products dynamically based on industrycycle changes to maintain a balanced product structure that offers better growth potential and theability to hedge against market fluctuations.
The Company has established three lines of defense for risk management: front-line businessdepartments, headquarters risk control departments, and headquarters audit departments. It activelyengages in risk management activities, including the establishment of a pre-control system, in-process management, post-incident analysis, and ongoing system optimization. Major risks
identified by the Company are mapped, categorized, and managed through a hierarchical andstratified approach. Additionally, digital tools are leveraged to strengthen key risk managementareas, such as customer credit risks and price risks, through automated warning systems to ensureoperational stability.
4.Global Channels and Resource Integration Capabilities
The Company has cultivated a strong customer base consisting of top-tier enterprises in the metalminerals, agricultural products, energy and chemicals, and new energy industries, forming a robustand well-established global business network. It has formed close partnerships with domestic andinternational stakeholders, including clients, fund providers, technology supporters, and logisticsservice providers, enabling the accumulation of extensive industry resources, information resources,logistics resources, and financial resources. The Company's resource barriers are progressivelystrengthening, as its business model continues to mature, enhancing its ability to negotiate withupstream suppliers, distribute products downstream, and deliver comprehensive supply chainservices.
5. Multidimensional Industrial Research Capabilities
The Company has established a three-tier research framework, comprising the headquarters researchinstitute, specialized research subsidiaries, and research departments within frontline operatingentities. It has assembled a team of dedicated research professionals who conduct continuoustracking and analysis across macro, industry, and product dimensions. Moreover, the Company hasjoined forces with renowned investment research firm, Kaifeng Fund, through a strategiccollaboration in the form of a joint venture company. The Company has also successfullyimplemented the construction of comprehensive supply chain databases, encompassing operations,finance, logistics, risk management, and human resources. With the accumulation of extensive data,it has established data processing models to continuously enhance its data mining capabilities. Thedevelopment of the Company's research capabilities plays a pivotal role in mitigating industry risks,tackling market price fluctuations, and ensuring steady and efficient business operations.
6.Professional Supply Chain Service Team
The Company places great emphasis on talent development and team building, establishing amarket-driven, professional, and international supply chain service team that is capable of designingspecialized supply chain solutions to meet customer needs. The Company's team management andmotivation strategies are highly market-oriented and systematized. In 2020 and 2022, equityincentive plans were introduced to enhance the Company's long-term incentive mechanism, with acumulative incentive allocation of nearly 8% of the total share capital at the time of granting. Theincentive shares are further tilted towards core management personnel and frontline business teams,aiming to attract and retain exceptional talent and fully engage the Company's core team bycultivating a sense of ownership.
IV. Management Discussion and Analysis
1. Major Business Achievements and Operational Data in the mid-year of 2023
(1) Major Business Achievements
In the mid-year of 2023, both domestic and international demand remained weak, leading to overalldownward pressure on prices of bulk. As a result, the manufacturing sector, including the Company'sclients, experienced a slowdown in demand for raw materials. This, coupled with reduced inventorylevels and extended delivery cycles, has had a direct impact on our profitability. Our financialperformance has shown a YoY decline, with our revenue decreasing by 8.11% to 233.5 billion RMBand our net profit attributed to parent company dropping by 35.77% to 891 million RMB. The returnon equity has decreased by 4.09 percentage points to 5.50% and the net profit margin on sales hasdecreased 0.38 percentage points in to 0.42%. On the positive side, our asset-liability ratio hasdeclined by 4.30 percentage points to 70.20%.
In order to mitigate the challenges posed by the intricate and volatile macroeconomic environment,our company has remained steadfastly committed to our " 6th Five-Year Plan " strategic framework,focusing on fulfilling the needs of our manufacturing clients. We have forged strong partnershipsand weathered the storm together, while also persistently pursuing innovative transformation andenhancing our service capabilities. This has yielded positive results in terms of business expansionand acquiring new customers. Notably, our trading volume in bulk commodities has recorded agrowth of 13.72% to 102.05 million tons. Specifically, the trading volume of ferrous metals supplychain has reached 40.72 million tons (+9.50% YoY), that of grain has reached 6.06 million tons(+9.97% YoY), that of thermal coal has reached 26.57 million tons (+18.26% YoY), that of oilproduct has reached 2.66 million tons (+229.23% YoY), and that of new energy has reached 0.15million tons (+115.26% YoY)
Our consistent dedication to excellence has been recognized through numerous accolades. Fortwelve consecutive years, we have been included in the prestigious Fortune China's Top 500Companies, climbing to the 25th position. Furthermore, we have been honored with the first place
in the national general warehousing enterprise rankings for 2023 and have been recognized as anexcellent case in China's logistics and supply chain financial services in 2022. Additionally, we havereceived the gold award at the International Grain and Oil Expo. The recognition of our brand valuehas been reflected in our inclusion in the Top 100 List of Brand Value of Chinese Listed Companiesfor 2023, while our pristine credit rating has been maintained at the AAA level.
(2) Major Business Data
The Company has entered into a Blanket Purchase Agreement with its customers to furnish themwith a comprehensive range of supply chain services encompassing procurement and distribution,logistics, supply chain finance, information consulting, processing, and so forth. In line withindustry norms and practices, all aforesaid services were dependent on the bulk commodity supplyas the primary carrier, and their corresponding revenue and profits were manifested in the operatingperformance of core commodities, as articulated below:
Unit: billion, RMB
| Category | Total Operating Trading Volume | Total Operating Revenue | Combined Futures and Spot Gross Profit | Combined Futures and Spot Gross Profit Margin | ||||
| Number (million tons) | YOY | Amount | YOY | Amount | YOY | Value | YOY | |
| Commodity Trading | 102.05 | 13.72% | 224.9 | -8.48% | 3.29 | -33.83% | 1.47% | Decrease by 0.56 percentage points |
| Among these: Metallic Mineral | 60.77 | 8.04% | 148.2 | -13.71% | 2.48 | -22.43% | 1.67% | Decrease by 0.19 percentage points |
| Agricultural Products | 8.12 | 16.92% | 26.5 | 9.74% | -0.13 | -118.94% | -0.48% | Decrease by 3.23 percentage points |
| Energy and Chemical | 33.02 | 24.66% | 40.4 | 1.92% | 0.61 | -28.91% | 1.50% | Decrease by 0.65 percentage points |
| New Energy | 0.15 | 115.26% | 9.4 | 8.96% | 0.29 | -1.80% | 3.04% | Decrease by 0.33 percentage points |
Notes: The Company provides integrated supply chain services and engages in spot trading to support its operations.It utilizes futures instruments to hedge against price volatility in the commodity markets, resulting in changes in fairvalue and gains or losses from the disposal of such instruments. The combined gross profit and gross profit marginof the futures and spot trading are calculated after accounting for the hedging gains or losses.During the reporting period, the Company primarily operated in a market where commodity pricesgenerally declined. This put pressure on the demand and profitability of its downstream customers,resulting in a decrease in both the company's operating revenue and gross profit. Specifically, in thegrain supply chain, the sales activities occur in batches while the purchasing season is relativelyconcentrated. This industry characteristic creates a mismatch in the timing of procurement and sales,
making the gross profit and gross profit margin highly sensitive to price fluctuations. The cornmarket experienced a decline in price during the reporting period, leading to a negative gross profitmargin for the agricultural products sector.
In addition to serving the internal supply chain business team, the Company's logistics system alsoprovides services to external customers in the open market. The performance of this operation isindependent accounting, and the details are as follows:
Unit: million, RMB
| Category | Total Operating Revenue | Total Gross Profit | Gross Profit Margin | |||
| YOY | Amount | Amount | YOY | Amount | YOY | |
| Commodity Logistics | 3,422 | -11.50% | 388 | -14.99% | 11.33% | Decrease by 0.47 percentage points |
| Among these: Integrated Logistics | 2,770 | -12.59% | 269 | -2.49% | 9.72% | Increase by 1.01 percentage points |
| Agricultural Products Logistics | 149 | -29.18% | 90 | -10.44% | 60.12% | Increase by 12.58 percentage points |
| Railway Logistics | 503 | 3.21% | 29 | -63.71% | 5.79% | Decrease by 10.67 percentage points |
Notes: Integrated logistics, agricultural logistics, and railway logistics refer to the market-oriented logistics servicesprovided by three subsidiaries of Xiangyu, namely Xiangyu Express, Xiangyu Farming, and Xiangdao Logistics.Integrated logistics mainly includes international routes, international trains, inland water transportation, roadtransportation, domestic and overseas warehousing, while agricultural logistics mainly includes grain national andprovincial storage services.
The agricultural product logistics sector experienced a decline in business volume due to reducedactivity in grain national storage, resulting in a slight decrease in operating revenue. However, therewas an increase in the proportion of provincial grain storage business and futures deliverywarehousing business, leading to a YoY growth in gross profit margin. Railway logistics wasaffected by both weak demand in the coal market and changes in the policy regarding charges forreturning empty open-top containers. Additionally, there was an increase in depreciation andamortization, resulting in a decrease in gross profit and gross profit margin.
2. Key Initiatives and Accomplishments in the Mid-Year of 2023
During the mid-year of 2023, the Company made a steadfast commitment to business innovation
and transformation. It centered its efforts on meeting the core needs of its customers, with aparticular focus on achieving "platformization, internationalization, and digitalization."Simultaneously, the Company continuously strived to enhance its comprehensive supply chainservice capabilities.
(1) Optimization of Customer Structure
The Company continued to target manufacturing enterprise clients and provided comprehensiveservices to enhance their cost-effectiveness. Despite downstream demand and profitability pressuresin the manufacturing industry, the Company's tailored services helped improve customer retention.The proportion of manufacturing enterprises in terms of client base and service volume hasremained above 50% and 60% respectively. Notably, the proportion of manufacturing enterpriseclients of aluminum supply chain has increased to over 75% in terms of service volume, while thatof coal and grain supply chain has increased to 65% and over 60% respectively. In Additional, theCompany focused on resource-based and industrial strategic clients, signing strategic/long-termagreements with Fone Energy, Jining Energy, and China Shipping, among others.
(2) Improvement of Platform Capabilities
Platform capability enhancement: The Company prioritized the development of an integratedplatform to provide customers with a seamless and high-quality one-stop supply chain serviceexperience. This included strengthening channel and logistics capabilities to meet customerdemands effectively.
Overall, these initiatives enabled the company to solidify its business innovation transformation inthe first half of 2023, with a focus on core customer needs and a commitment to platformization,internationalization, and digitalization. Consequently, the Company's comprehensive supply chainservice capabilities have continued to improve.
①Channel Resource Capability
In terms of the metal mineral supply chain, the Company focused on core capacity building andemphasized the extension of upstream and downstream chains. In the stainless-steel supply chain,it continued to integrate channels for upstream ore sources and downstream steel mills to ensure thesupply chain service for the "XY Group's integrated stainless-steel smelting and refining project inIndonesia, with a production capacity of 2.5 million tons." In the aluminum supply chain, itexpanded overseas direct mining channels and strengthened the integration of the entire upstreamand downstream channels, while innovating the transshipment business model. In the black metalsupply chain, it improved the integrated service capabilities of raw material supply chains such ascoking coal, coke, iron ore, and silicon manganese alloy, and provided value-added services such asprice management and spot pricing for end customers to enhance service revenue.
In the agricultural products supply chain, the Company achieved a total autumn grain purchasevolume of over 11 million tons for the 2022-2023 production season. It also added the nationalsoybean regulation and reserve business and promoted international business layout by establishingan office in Central Asia and initiating the first barley procurement and sales business. It deepenedthe operational mode of the industrial chain and continuously expanded the soybean crushing layout.
In the energy and chemical supply chain, the Company seized upstream resources and exploreddiversified end customers. In the coal sector, it strengthened the capability of direct pitheadprocurement, optimized customer structure, and continued to explore non-electric end customers.In the oil products sector, it developed new international suppliers upstream and established goodcooperative relationships with multiple domestic integrated refining and chemical groupsdownstream. In the plastics and chemical sector, it deepened cooperation with core customers andenhanced overseas sales capabilities.
In the new energy supply chain, the Company connected key customers and nodes, and itsinternational competitiveness became increasingly prominent. In the lithium-ion battery and nickel-cobalt sector, relying on the full industry chain service model, it deepened cooperation with leadingcustomers and maintained steady management of lithium-ion battery products, with nickel productsales volume increasing by over 100% YoY. In the photovoltaic sector, it continued to deepen
cooperation with domestic leading enterprises, utilized its overseas warehouse advantages, andserved factory-type customers in Turkey, India, Europe, and other countries or regions, increasingthe export volume of photovoltaic main and auxiliary materials. In the energy storage sector, itfirmly pursued the coordinated strategy of solar energy storage and lithium energy storage, utilizedthe advantage of battery cell supply, entered the supply chain system of energy storage systemintegrators, and focused on building new growth opportunities.
②Logistics Service Capability
The company has pioneered the construction of a networked logistics service system centeredaround " highway, railway, waterway, and warehouse " in the industry. It is also accelerating itsglobal logistics layout to provide robust support for the rapid establishment of a global supply chainservice system.
In terms of highway transportation, the freight volume on the networked freight platform hasexceeded 11 million tons, marking a YoY growth of over 100%. Additionally, there has been anaddition of more than 20k vehicles, bringing the total number of integrated vehicles on the platformto over 80k.
Regarding railway transportation, the volume of China-Europe and Central Asia freight trains hasincreased by 45% compared to the same period of previous year. The Company successfullylaunched the inaugural return China-Kazakhstan-Wuhan freight train and the first Jiangxi NanchangInternational Land Port "Railway Express" China-Europe train.
In the field of water transportation, there has been a steadfast enhancement of China's internationalship operations capacity. The business volume on the China-Indonesia shipping route increased byapproximately 400% compared to the previous year, while the business volume on internationallong-haul sea routes soared by over 900% YoY. The integration of the online water transportationplatform successfully incorporated more than 850 vessels from the wider maritime community.
In terms of warehouse, the Company has added 5 new self-operated warehouse points within thecountry, bringing the total number of self-owned and leased warehouses under management to 46.Additionally, a new Fujin corn futures delivery warehouse has been established, increasing theoverall number of futures/commodity delivery warehouses to 17. The total storage capacity hasreached over 1 million tons, covering commodities such as soybean, corn, pulp, PE, PP, PVC, shortfibers, coking coal, iron ore, and industrial silicon across 10 categories.
(3) Expansion of International Business
The Company has included "internationalization" as one of its key development directions in its"Sixth Five-Year" strategic plan. As part of its efforts to accelerate the establishment of aninternationalization support system, the company is actively expanding its international business.
Firstly, the Company is strategically focusing on developing localized platforms to align with theglobal supply chain restructuring trend. It is gradually establishing on-the-ground operations forvarious products such as plastics, aluminum ingots, nickel ore, and petroleum coke in emergingregions like Vietnam, Indonesia, and the United States.
Secondly, the Company is strengthening its capabilities in international aviation and rail operationsto facilitate the advancement of its overseas business. It is also expanding its network of overseaswarehouses to reach countries and regions including Europe, South Africa, Brazil, and SoutheastAsia, aiming to enhance its comprehensive service capabilities for industrial clients.
Thirdly, the Company is aggressively expanding its international business, with a total internationalbusiness volume of around $15.5 billion, showing a remarkable YoY growth rate of 41%. Its importsamount to nearly $10 billion, with a YoY growth of 50%. In terms of imports, the clearance volumeof Mongolian coal has increased by over 240% YoY, ranking among the industry leaders. The directimport volume of bauxite has grown sevenfold, and the crude oil import business has made steadyprogress. In terms of exports, the revenue from the exports of photovoltaic products is 21 times ofthe amount in the same period of the previous year.
(4) Breakthroughs in Digital Innovation
The Company is strategically committed to implementing digital innovation and advancing a seriesof digital projects to establish a digital transformation support system that empowers thedevelopment of the enterprise.
Firstly, the Company has focused on three major production areas: Suihua, Yi'an, and Fujin, throughthe Xiangyu Iron Army initiative. The agricultural industry-level internet platform has attractedaround 5,000 new planters, bringing the total number of planters to over 43,000. Approximately 1.3million acres of land has been recorded for the 2023-2024 production season, steadily progressingthe expansion of diversified businesses such as order-to-grain, the benefit farmers' market, and"grain chain connectivity." The WaaS system has facilitated the storage of approximate 14 milliontons of grains and the inspection of grains of approximate 90k times, effectively supporting businessoperations. The integration of external systems (customers, ports, etc.) has been promoted to achieveefficient data management.
Secondly, Xiamen Yuliantong Supply Chain Technology Co., Ltd. has been established toundertake the research and development, as well as the operation, of the "Yuliantong" digital supplychain service platform. This aims to accelerate business expansion, and the customer credit limithas reached approximately 1.4 billion RMB, representing a YoY growth of over 150%.
Thirdly, the Company has improved the smart logistics service platform. The construction of theXifeng and Gaoan smart industrial parks has been completed and launched, while the design plansfor the Qinghai, Hunan, Sanmenxia, and Gongyi smart industrial parks have been finalized. Theintelligent upgrading of the Xiangdao area in Anyang is continuously being enhanced to improvecargo ownership control and customer experience.
Lastly, the Company continuously enhances the functionality of the network freight platform toenhance customer experience. It has introduced services such as waterway transfer and
transshipment, enriched service scenarios, and improved risk management capabilities throughfeatures like vehicle trajectory verification and alerts for delayed unloading of on-route deliveries.
(5) Deepening Industrial Operations
The Company has ventured into various manufacturing sectors, including shipbuilding, mining, andoil refining, to enhance its operational capabilities along the industrial chain. Capitalizing on themarket recovery and the positive impact of its branded ship models, the shipbuilding division hassecured 15 new orders, with over 50 orders in hand which could cover the productions to 2025. Byimplementing lean management, innovating manufacturing processes, and prioritizing branded shipmodels, the Company has achieved a significant improvement in average financial gross margin,thereby enhancing its sustained profitability. The Company's strategic positioning in themanufacturing sector aims to smoothen industry cycles, mitigate market risks, and elevate overallprofitability.
3. Key Business Plans for the Second Half of 2023
In the second half of 2023, the Chinese economy is expected to face a complex and challengingexternal environment. However, it still possesses resilience and potential for growth, and the long-term prospects remain positive. In the short term, there might be continued volatility in the bulksupply chain industry market. To address these challenges, our Company will remain committed tofulfilling core customer needs and continuously enhance our capabilities in integrated digitalplatforms. Furthermore, we will expand our international footprint, while focusing on riskmanagement. By capitalizing on opportunities, we aim to increase our market share and scale,thereby improving profitability margins.
Our strategic focus will be on the following key areas:
International Expansion: We will continue to expand our upstream resources overseas and developa diverse portfolio of international end customers. This will include providing supply chain servicesfor the "XY Group's integrated stainless-steel smelting and refining project in Indonesia, with a
production capacity of 2.5 million tons." in Indonesia. In addition, we will further strengthen ourpresence in export and transit businesses in Southeast Asia. Moreover, we will strategically establishinternational logistics nodes in regions such as Southeast Asia, Central Asia, and Africa.
Logistics Capabilities: By integrating domestic and international logistics resources, we aim tooptimize agricultural product logistics, aluminum logistics, and the establishment of an internationalchartering platform. This will enable us to provide specialized and efficient logistics services acrossvarious segments of the supply chain.
Agricultural Product Sector: Taking into account the impact of extreme weather conditions on theglobal supply of corn, we will enhance our industry analysis capabilities and optimize our businessoperations accordingly. Additionally, we will proactively identify and meet the demands ofdownstream customers, closely monitor production areas, and strategically adjust our procurementand sales strategies. To further enhance our international presence, we will expand our productofferings and import channels. Moreover, we will further enhance the digitization by promoting the"Xing Xing Xiang Nong" app and the WaaS system.
Manufacturing Sector: In the manufacturing sector, we will pursue a structured approach toadvance our soybean crushing project layout and continue to optimize our operational model alongthe industrial chain. Additionally, we will prioritize the successful delivery of over 20 shipbuildingprojects throughout the year. By strengthening our cost management practices, we aim to improvethe profitability and contribute incremental profits.
Capital Operation: We will actively facilitate the implementation of non-public A-share issuancesto bolster our capital base, enabling us to seize growth opportunities and strengthen our financialposition.
Xiamen Xiangyu Co., Ltd.August 28th, 2023