厦门象屿:2023Interim Report(Summary)

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 Operations
during 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 industry
trends" and "Company's business model."
1. Analysis of the Industry's Operating Conditions during the Reporting Period and Future of
Industry Trends
In the first half of 2023 the global arena remains tumultuous and ever-evolving. Globally major
economies experienced sluggish growth high level of uncertainty of the macro environment and a
slower-than-expected recovery in international trade. The adverse impact of global environment
changes has escalated. On the domestic front China faced some challenges in terms of export
growth and business investment confidence which were compounded by various difficulties
including cyclical and structural contradictions. Additionally weak domestic demand hindered the
smooth 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 industrial
enterprises of a certain scale with limited monthly recovery. The manufacturing sector continued
to face structural deflationary pressures and the issue of overcapacity remained unresolved. On the
demand side weak external demand and a slow recovery in domestic demand resulted in an increase
in 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 bases
overseas leading to a partial diversion of domestic demand to international markets. In the realm of
supply chain services there was a noticeable decline in the consumption of goods by manufacturing
clients and this downward trend is likely to persist in the third quarter. However there may be a
turning point on the horizon. Furthermore within the supply chain services process we observed
that larger manufacturing clients were gradually stabilizing and improving their production and
business prospects while small and medium enterprises still held weak expectations. Pressing issues
such as increasing accounts receivable prolonged payment cycles and rising debt ratios remainedprominent.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 already
in the pipeline. As inventories gradually clear and supply-side capacity resumes it will create
favorable conditions for bulk commodity supply chain service companies to restore their service
ecosystems. This will enable them to leverage their scale advantages and improve the profitability
of the bulk commodity supply chain industry.
2. Industry Development Trends
In recent years due to the disruptions caused by global geopolitical shifts and macroeconomic
factors the speed of changes in domestic policies and the business environment has been
accelerating. Additionally with the domestic market approaching saturation increasing labor costs
and supply chain outsourcing driving relocation many leading manufacturing companies are
shifting their focus towards overseas markets. In this new landscape it becomes increasingly
important for bulk supply chain service providers to prioritize the safety and stability of their
services. However effectively leveraging their model technological and resource advantages to
establish an internationalized supply chain service system and better meet the needs of
manufacturing companies in terms of internationalization safety efficiency and etc. becomes of
utmost importance.Specifically we have noticed the following distinct trends:
(1) The concentration of China's bulk supply chain industry continues to rise and leading
companies achieve contrarian growth.Over the past five years the market size of China's bulk supply chain has remained stable at around40-50 trillion RMB.1 Despite sluggish domestic demand and a slowdown in industrial production
and exports in the first half of 2023 top-tier bulk supply chain service companies have effectively
utilized their resources and services to actively expand their distribution networks and expand their
market shares under the downward cycle highlighting the dominance of these leading players in
the industry.Figure 1: Market Size and CR4 Market Share in Figure 2: Company Revenue and Market Share in
China's Bulk Supply Chain Industry 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 the
manufacturing 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 competitive
advantages for early market entrants.As the "Belt and Road" initiative continues to deepen the pace of China's manufacturing industry
expanding overseas will accelerate which will further intensify the trend of global supply chain
restructuring. Domestic bulk supply chain service enterprises on the basis of their solid presence in
the domestic market are now speeding up their international expansion. This will help
manufacturing companies to sail into international waters and pave the way for industry leaders to
1 The market size of the bulk supply chain service industry is determined by the combination
of 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 iterative
transformation of the supply chain industry's service model.Customer demands are shifting from single-category and single-link services to a more diverse
range of offerings including combined supply integrated links expanded supply chains and
regional synergy. Consequently the ability to manage diverse product portfolios provide varied
service offerings and establish robust logistics infrastructure becomes vital. A core differentiating
factor lies in the "physical-trade linkage" which combines multi-product operations with
comprehensive integrated services serving as a key driver of competitiveness.Against this backdrop supply chain enterprises equipped with comprehensive supply chain solution
design capabilities and integrated services are well-positioned to expand their involvement across
multiple stages of the value chain. By efficiently allocating resources and leveraging networked
logistics services they can deepen customer loyalty enhance market shares and improve profit
margins.Figure 3: Changes in Customer Demand and Evolution of Service ProvidersII. Business Model
The Company focuses on the core demands of manufacturing enterprise customers and continuously
provides "comprehensive multi-level wide-ranging" services. By optimizing product combinations
upgrading business models and improving profit structures the Company strives to be at the
forefront of industry in terms of model leadership.
1. Product Combination
Based on customer needs and its own business philosophy the Company selects products based on
the following criteria: * Strong liquidity and easy monetization; * High standardization and
easy storage; * Large demand long industrial chain and ability to provide comprehensive
services 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: "ferrous
metals aluminum stainless steel new energy coal and grain."
The Company continuously enriches its product portfolio and focuses on important niche categories
to establish scale advantages and market influence. It cultivates the ability to provide a
comprehensive package of bulk supply and adjusts the product composition dynamically based on
industry cycles. This enable the Company to maintain a balanced product structure in different
cycles resulting in better growth potential and hedging capabilities.Figure 4: Breakdown of Combined Futures and Spot Gross Profit in 1H232. Customer Structure
With the advantage of our brand and superior services our company has defied market challenges
and successfully expanded our customer base using a dedicated ground promotion team. In the first
half of 2023 we achieved a significant YoY increase of 453 active customers bringing the total to
9886.
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 a
focus on increasing the proportion of manufacturing enterprise clients. As of the end of the first half
of 2023 manufacturing enterprises accounted for more than 50%/60% of the Company's client base
and total service volume. Notably the service volume for the manufacturing enterprises of the new
energy supply chain accounts for more than 90% and that for the manufacturing enterprises of the
ferrous 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 "Integrated
Service" approach offering one-stop comprehensive services such as raw material procurement
finished product distribution inventory management warehousing and logistics and supply chain
finance. Through customizing and providing procurement and sales plans cross-regionaltransportation and other comprehensive services the company successfully resolved the issue of
spatial 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 material
procurement 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 Company
extended 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 industry
chain the Company capitalized on the opportunity to enter the productive manufacturing links with
value-adding potential forming an industrial chain operation mode of "Supply Chain Services +
Production Manufacturing" further improving the profitability of comprehensive revenue and
smoothing cyclical fluctuations.Figure 6: Evolution of the Company's Operating ModelIn 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 previous
three phases. These services are provided either separately or in combination to cater to the needs
of 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 service
capabilities including networked logistics digital supply chain risk management global resource
integration as well as multidimensional industrial research capabilities and dedicated promotion
service teams. These capabilities are interwoven connected and integrated onto a platform which
is 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 enterprise
customers. This enables us to swiftly analyze and integrate this information to recommend suitable
products and services. By tailoring and customizing our output to each individual client we deliver
personalized 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 of
manufacturing enterprises the Company utilizes multimodal transportation logistics capabilities
multi-channel commodity supply and sales channels and big data mining and analysis to accurately
predict customer inventory levels match supply channels to products and achieve seamless regional
warehouse cross-region distribution and cross-period replenishment. This enables us to accurately
and efficiently resolve all kinds of “time and space mismatch” issues making us a leader in the
industry.
4. Profit Model
The Company places great emphasis on service revenue and scale-driven profitability establishing
a solid foundation for stable profitability. Through regional expansion customer and product
category diversification as well as the implementation of service overlays the Company hasachieved continuous and steady growth in its operational performance. It also capitalizes on price
differentials to generate profits during periods of volatility in commodity prices.To enhance service revenue levels the Company engages in direct upstream procurement and
integrates full-chain services thereby improving circulation efficiency and reducing costs within
the supply chain. The Company also focuses on achieving scale-driven profitability by maintaining
robust growth and implementing synergies between physical and trading activities. Leveraging its
extensive customer resources and extensive logistics network the Company enhances its
capabilities in industrial research and analysis of commodity supply and demand. It employs
scientific position management to optimize income from price differentials.Table 1 Profit Structure and Definitions
the
Correlation
Source of
Interpretation with
Revenue
Commodity
Prices
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
Weak
Service Profits information consulting for which the Company earn service fees
Correlation
(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.Leveraging our extensive business volume we strive to
Scale
achieve cost advantage through centralized procurement and
Transaction Collective Weak
specialized operation thereby reducing operational costs
Profits Bargaining Correlation
across all segments and contributing to trading revenue. As
Profit
the Company continue to enhance our scale advantage andthe
Correlation
Source of
Interpretation with
Revenue
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.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
Profiting differences in pricing across different regions to generate
Strong
from Price profitability. With a vast customer network and robust
Correlation
Disparities logistics infrastructure the Company enhances its
capabilities in industry research and supply-demand
analysis strategically managing positions to maximize
returns.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 operating
entities (Xiangyu Express Xiangdao Logistics Xiangyu Agricultural Products). It possesses a team
of over a thousand professionals specialized in logistics services with a focus on market and
internationalization.The Company has taken the lead in constructing a networked logistics service system that revolves
around “highway railway waterway and warehouse” linking markets both domestically and
internationally. This system includes a railway transportation network that connects the east and
west regions and links the north and south regions a highway transportation network that radiates
throughout the country a waterway transportation network that extends from major domestic ports
to the “Belt and Road” regions a warehouse cluster that covers the coastal areas in the east and the
bulk distribution areas in the central and western regions and international logistics channels such
as international chartering and international freight trains that link overseas markets. This enables
the Company to provide high-quality end-to-end customized logistics services for bulk as well as
multimodal 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 market
competitiveness of its logistics service system. The networked logistics service system is one of the
core capabilities of the Company in serving manufacturing industry clients and also serves as an
important cornerstone for the Company’s cargo rights control and business digitization
transformation.Table2 Logistics Resources and Capabilities
Category Resources Capability
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
Railway 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”.The Company possesses a fleet of around 1000 self-owned transport vehicles and its
Highway network freight platform integrates more than 80k vehicles from the market. During the
reporting period it successfully transported over 11 million tons of goods.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.Waterway
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.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
Warehousing 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.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
International
period) the China-Vietnam & Thailand logistics corridor and the China-Europe bi-
Logistics 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 service
efficiency and elevating the business model. Leveraging vast business data extensive customer
resources and diverse application scenarios the Company is building an intelligent information
technology system. The digitalization efforts of the Company can be categorized into three levels:
Digitalization of logistics infrastructure: The Company is actively implementing digital
transformations in warehouses to create a smart logistics service platform that improves logistics
management efficiency enhances cargo control capabilities and integrates multi-modal
transportation 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 platform
to effectively connect funding partners with customer demands. Additionally in collaboration with
the 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 system
encompassing modules like financial control human resources management customer relations
risk management and equipment and asset management the Company is providing comprehensive
support for business operations. Utilizing enterprise management analysis systems customer
analysis and large-scale data operation systems the Company is extracting and analyzing vast
amounts 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 enterprises
as its core clients and focusing on highly liquid easily convertible standardized and storable bulk
as its main products. It adapts the composition of these products dynamically based on industry
cycle changes to maintain a balanced product structure that offers better growth potential and the
ability to hedge against market fluctuations.The Company has established three lines of defense for risk management: front-line business
departments headquarters risk control departments and headquarters audit departments. It actively
engages in risk management activities including the establishment of a pre-control system in-
process management post-incident analysis and ongoing system optimization. Major risksidentified by the Company are mapped categorized and managed through a hierarchical and
stratified approach. Additionally digital tools are leveraged to strengthen key risk management
areas such as customer credit risks and price risks through automated warning systems to ensure
operational stability.
4.Global Channels and Resource Integration Capabilities
The Company has cultivated a strong customer base consisting of top-tier enterprises in the metal
minerals agricultural products energy and chemicals and new energy industries forming a robust
and well-established global business network. It has formed close partnerships with domestic and
international stakeholders including clients fund providers technology supporters and logistics
service providers enabling the accumulation of extensive industry resources information resources
logistics resources and financial resources. The Company's resource barriers are progressively
strengthening as its business model continues to mature enhancing its ability to negotiate with
upstream suppliers distribute products downstream and deliver comprehensive supply chain
services.
5. Multidimensional Industrial Research Capabilities
The Company has established a three-tier research framework comprising the headquarters research
institute specialized research subsidiaries and research departments within frontline operating
entities. It has assembled a team of dedicated research professionals who conduct continuous
tracking and analysis across macro industry and product dimensions. Moreover the Company has
joined forces with renowned investment research firm Kaifeng Fund through a strategic
collaboration in the form of a joint venture company. The Company has also successfully
implemented 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. The
development 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 a
market-driven professional and international supply chain service team that is capable of designing
specialized supply chain solutions to meet customer needs. The Company's team management and
motivation strategies are highly market-oriented and systematized. In 2020 and 2022 equity
incentive plans were introduced to enhance the Company's long-term incentive mechanism with a
cumulative incentive allocation of nearly 8% of the total share capital at the time of granting. The
incentive 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 by
cultivating 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 overall
downward pressure on prices of bulk. As a result the manufacturing sector including the Company's
clients experienced a slowdown in demand for raw materials. This coupled with reduced inventory
levels and extended delivery cycles has had a direct impact on our profitability. Our financial
performance has shown a YoY decline with our revenue decreasing by 8.11% to 233.5 billion RMB
and our net profit attributed to parent company dropping by 35.77% to 891 million RMB. The return
on equity has decreased by 4.09 percentage points to 5.50% and the net profit margin on sales has
decreased 0.38 percentage points in to 0.42%. On the positive side our asset-liability ratio has
declined 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 partnerships
and weathered the storm together while also persistently pursuing innovative transformation and
enhancing our service capabilities. This has yielded positive results in terms of business expansion
and acquiring new customers. Notably our trading volume in bulk commodities has recorded a
growth of 13.72% to 102.05 million tons. Specifically the trading volume of ferrous metals supply
chain 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 oil
product has reached 2.66 million tons (+229.23% YoY) and that of new energy has reached 0.15
million tons (+115.26% YoY)
Our consistent dedication to excellence has been recognized through numerous accolades. For
twelve consecutive years we have been included in the prestigious Fortune China's Top 500
Companies climbing to the 25th position. Furthermore we have been honored with the first placein the national general warehousing enterprise rankings for 2023 and have been recognized as an
excellent case in China's logistics and supply chain financial services in 2022. Additionally we have
received the gold award at the International Grain and Oil Expo. The recognition of our brand value
has been reflected in our inclusion in the Top 100 List of Brand Value of Chinese Listed Companies
for 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 them
with a comprehensive range of supply chain services encompassing procurement and distribution
logistics supply chain finance information consulting processing and so forth. In line with
industry norms and practices all aforesaid services were dependent on the bulk commodity supply
as the primary carrier and their corresponding revenue and profits were manifested in the operating
performance of core commodities as articulated below:
Unit: billion RMB
Total Operating Total Operating Combined Futures and
Combined Futures and Spot Gross Profit Margin
Trading Volume Revenue Spot Gross Profit
Category
Number
YOY Amount YOY Amount YOY Value YOY
(million tons)
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 fair
value and gains or losses from the disposal of such instruments. The combined gross profit and gross profit margin
of 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 prices
generally 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 the
grain supply chain the sales activities occur in batches while the purchasing season is relatively
concentrated. This industry characteristic creates a mismatch in the timing of procurement and salesmaking the gross profit and gross profit margin highly sensitive to price fluctuations. The corn
market experienced a decline in price during the reporting period leading to a negative gross profit
margin for the agricultural products sector.In addition to serving the internal supply chain business team the Company's logistics system also
provides services to external customers in the open market. The performance of this operation is
independent accounting and the details are as follows:
Unit: million RMB
Total Total
Gross Profit Margin
Category Operating Revenue Gross Profit
YOY Amount Amount YOY Amount YOY
Commodity Logistics 3422 -11.50% 388 -14.99% 11.33% Decrease by 0.47 percentage points
Among these: Integrated
2770 -12.59% 269 -2.49% 9.72% Increase by 1.01 percentage points
Logistics
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 services
provided by three subsidiaries of Xiangyu namely Xiangyu Express Xiangyu Farming and Xiangdao Logistics.Integrated logistics mainly includes international routes international trains inland water transportation road
transportation domestic and overseas warehousing while agricultural logistics mainly includes grain national and
provincial storage services.The agricultural product logistics sector experienced a decline in business volume due to reduced
activity in grain national storage resulting in a slight decrease in operating revenue. However there
was an increase in the proportion of provincial grain storage business and futures delivery
warehousing business leading to a YoY growth in gross profit margin. Railway logistics was
affected by both weak demand in the coal market and changes in the policy regarding charges for
returning empty open-top containers. Additionally there was an increase in depreciation and
amortization 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 innovationand transformation. It centered its efforts on meeting the core needs of its customers with a
particular focus on achieving "platformization internationalization and digitalization."
Simultaneously the Company continuously strived to enhance its comprehensive supply chain
service capabilities.
(1) Optimization of Customer Structure
The Company continued to target manufacturing enterprise clients and provided comprehensive
services to enhance their cost-effectiveness. Despite downstream demand and profitability pressures
in 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 has
remained above 50% and 60% respectively. Notably the proportion of manufacturing enterprise
clients of aluminum supply chain has increased to over 75% in terms of service volume while that
of coal and grain supply chain has increased to 65% and over 60% respectively. In Additional the
Company focused on resource-based and industrial strategic clients signing strategic/long-term
agreements 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 integrated
platform to provide customers with a seamless and high-quality one-stop supply chain service
experience. This included strengthening channel and logistics capabilities to meet customer
demands effectively.Overall these initiatives enabled the company to solidify its business innovation transformation in
the 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 chain
service capabilities have continued to improve.* Channel Resource CapabilityIn terms of the metal mineral supply chain the Company focused on core capacity building and
emphasized 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 the
supply chain service for the "XY Group's integrated stainless-steel smelting and refining project in
Indonesia with a production capacity of 2.5 million tons." In the aluminum supply chain it
expanded overseas direct mining channels and strengthened the integration of the entire upstream
and downstream channels while innovating the transshipment business model. In the black metal
supply chain it improved the integrated service capabilities of raw material supply chains such as
coking coal coke iron ore and silicon manganese alloy and provided value-added services such as
price management and spot pricing for end customers to enhance service revenue.In the agricultural products supply chain the Company achieved a total autumn grain purchase
volume of over 11 million tons for the 2022-2023 production season. It also added the national
soybean regulation and reserve business and promoted international business layout by establishing
an office in Central Asia and initiating the first barley procurement and sales business. It deepened
the 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 explored
diversified end customers. In the coal sector it strengthened the capability of direct pithead
procurement optimized customer structure and continued to explore non-electric end customers.In the oil products sector it developed new international suppliers upstream and established good
cooperative relationships with multiple domestic integrated refining and chemical groups
downstream. In the plastics and chemical sector it deepened cooperation with core customers and
enhanced overseas sales capabilities.In the new energy supply chain the Company connected key customers and nodes and its
international 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 leading
customers and maintained steady management of lithium-ion battery products with nickel product
sales volume increasing by over 100% YoY. In the photovoltaic sector it continued to deepencooperation with domestic leading enterprises utilized its overseas warehouse advantages and
served factory-type customers in Turkey India Europe and other countries or regions increasing
the export volume of photovoltaic main and auxiliary materials. In the energy storage sector it
firmly pursued the coordinated strategy of solar energy storage and lithium energy storage utilized
the advantage of battery cell supply entered the supply chain system of energy storage system
integrators and focused on building new growth opportunities.* Logistics Service Capability
The company has pioneered the construction of a networked logistics service system centered
around " highway railway waterway and warehouse " in the industry. It is also accelerating its
global logistics layout to provide robust support for the rapid establishment of a global supply chain
service system.In terms of highway transportation the freight volume on the networked freight platform has
exceeded 11 million tons marking a YoY growth of over 100%. Additionally there has been an
addition of more than 20k vehicles bringing the total number of integrated vehicles on the platform
to over 80k.Regarding railway transportation the volume of China-Europe and Central Asia freight trains has
increased by 45% compared to the same period of previous year. The Company successfully
launched the inaugural return China-Kazakhstan-Wuhan freight train and the first Jiangxi Nanchang
International Land Port "Railway Express" China-Europe train.In the field of water transportation there has been a steadfast enhancement of China's international
ship operations capacity. The business volume on the China-Indonesia shipping route increased by
approximately 400% compared to the previous year while the business volume on international
long-haul sea routes soared by over 900% YoY. The integration of the online water transportation
platform 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 the
country 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 the
overall number of futures/commodity delivery warehouses to 17. The total storage capacity has
reached over 1 million tons covering commodities such as soybean corn pulp PE PP PVC short
fibers 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 an
internationalization support system the company is actively expanding its international business.Firstly the Company is strategically focusing on developing localized platforms to align with the
global supply chain restructuring trend. It is gradually establishing on-the-ground operations for
various products such as plastics aluminum ingots nickel ore and petroleum coke in emerging
regions like Vietnam Indonesia and the United States.Secondly the Company is strengthening its capabilities in international aviation and rail operations
to facilitate the advancement of its overseas business. It is also expanding its network of overseas
warehouses to reach countries and regions including Europe South Africa Brazil and Southeast
Asia aiming to enhance its comprehensive service capabilities for industrial clients.Thirdly the Company is aggressively expanding its international business with a total international
business volume of around $15.5 billion showing a remarkable YoY growth rate of 41%. Its imports
amount to nearly $10 billion with a YoY growth of 50%. In terms of imports the clearance volume
of Mongolian coal has increased by over 240% YoY ranking among the industry leaders. The direct
import volume of bauxite has grown sevenfold and the crude oil import business has made steady
progress. In terms of exports the revenue from the exports of photovoltaic products is 21 times of
the 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 series
of digital projects to establish a digital transformation support system that empowers the
development of the enterprise.Firstly the Company has focused on three major production areas: Suihua Yi'an and Fujin through
the Xiangyu Iron Army initiative. The agricultural industry-level internet platform has attracted
around 5000 new planters bringing the total number of planters to over 43000. Approximately 1.3
million acres of land has been recorded for the 2023-2024 production season steadily progressing
the 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 million
tons of grains and the inspection of grains of approximate 90k times effectively supporting business
operations. The integration of external systems (customers ports etc.) has been promoted to achieve
efficient data management.Secondly Xiamen Yuliantong Supply Chain Technology Co. Ltd. has been established to
undertake the research and development as well as the operation of the "Yuliantong" digital supply
chain service platform. This aims to accelerate business expansion and the customer credit limit
has 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 the
Xifeng and Gaoan smart industrial parks has been completed and launched while the design plans
for the Qinghai Hunan Sanmenxia and Gongyi smart industrial parks have been finalized. The
intelligent upgrading of the Xiangdao area in Anyang is continuously being enhanced to improve
cargo ownership control and customer experience.Lastly the Company continuously enhances the functionality of the network freight platform to
enhance customer experience. It has introduced services such as waterway transfer andtransshipment enriched service scenarios and improved risk management capabilities through
features 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 and
oil refining to enhance its operational capabilities along the industrial chain. Capitalizing on the
market recovery and the positive impact of its branded ship models the shipbuilding division has
secured 15 new orders with over 50 orders in hand which could cover the productions to 2025. By
implementing lean management innovating manufacturing processes and prioritizing branded ship
models the Company has achieved a significant improvement in average financial gross margin
thereby enhancing its sustained profitability. The Company's strategic positioning in the
manufacturing sector aims to smoothen industry cycles mitigate market risks and elevate overall
profitability.
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 challenging
external 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 bulk
supply chain industry market. To address these challenges our Company will remain committed to
fulfilling core customer needs and continuously enhance our capabilities in integrated digital
platforms. Furthermore we will expand our international footprint while focusing on risk
management. 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 develop
a diverse portfolio of international end customers. This will include providing supply chain services
for the "XY Group's integrated stainless-steel smelting and refining project in Indonesia with aproduction capacity of 2.5 million tons." in Indonesia. In addition we will further strengthen our
presence in export and transit businesses in Southeast Asia. Moreover we will strategically establish
international logistics nodes in regions such as Southeast Asia Central Asia and Africa.Logistics Capabilities: By integrating domestic and international logistics resources we aim to
optimize agricultural product logistics aluminum logistics and the establishment of an international
chartering platform. This will enable us to provide specialized and efficient logistics services across
various segments of the supply chain.Agricultural Product Sector: Taking into account the impact of extreme weather conditions on the
global supply of corn we will enhance our industry analysis capabilities and optimize our business
operations accordingly. Additionally we will proactively identify and meet the demands of
downstream customers closely monitor production areas and strategically adjust our procurement
and sales strategies. To further enhance our international presence we will expand our product
offerings 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 to
advance our soybean crushing project layout and continue to optimize our operational model along
the industrial chain. Additionally we will prioritize the successful delivery of over 20 shipbuilding
projects throughout the year. By strengthening our cost management practices we aim to improve
the profitability and contribute incremental profits.Capital Operation: We will actively facilitate the implementation of non-public A-share issuances
to bolster our capital base enabling us to seize growth opportunities and strengthen our financial
position.Xiamen Xiangyu Co. Ltd.August 28th 2023