NS8U.SINS8U.SISES
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Operator: Ladies and gentlemen, welcome to the conference call of Hutchison Port Holdings Trust annual results announcement for the year ended 31st December, 2025. Now, I will hand over to Mr. Ivor Chow, the CEO of Hutchison Port Holdings Trust. Mr. Chow, please begin.
Ivor Chow: Thank you. Hello, everyone. Thank you for joining our 2025 results announcement call. As usual, today, I'll give you kind of a low down as to how the second half of last year went as well as giving you some thoughts as to how I see 2026. And then I'm going to talk, obviously, a little bit about the DPU distribution and how I see it going forward. And then I'll hand over to Ivy, our CFO, to quickly cover the figures, and then we'll finally end it with Q&A, depending on where -- what you guys want to ask me about. Overall, if you kind of look at our results, you would say, I'm actually overall pretty happy with the 2025 results. It was obviously a fairly difficult year. The shipping market was particularly volatile given what's happening around the world, the geopolitical tensions, the tariff war and all the things that's happening around the world has had an impact to the stability of the shipping industry and the movement of goods overall. So despite kind of all of that, we achieved a throughput growth of about 3%, whereas most of our growth or almost all of our growth is driven by the growth in Yantian, almost 7% year-on-year growth, while Hong Kong kind of continue its decline that we have seen over the last couple of years. And I'll talk individually about them as well. But overall, if you kind of look at the individual trade, if you will, obviously, U.S. is affected significantly by the tariff imposed on China as well as other region -- other parts of the world. So if you look at the U.S. trade alone, especially export from Yantian is almost down 10%. The good thing is China export to the rest of the world, including Europe, continued to do quite well in 2025. And Europe was a bit of a surprise. It did actually increase 14% year-on-year in 2025 despite whatever is happening around the Red Sea and around the Suez Canal. So we can actually definitely see that China is actually pivoting away from relying on the U.S. market alone, but growing substantially is Europe, Middle East and Southeast Asian trade. And for Yantian, other than export, Yantian has also benefited a lot from the Gemini alliance, which I talked about last year as well. Yantian was picked as the transshipment location for South China and Yantian picked up a lot of transshipment, including some of the transshipment from Hong Kong as well. So, in some sense, you can look at -- there has been some shift of volume from our Hong Kong operation into Yantian. And overall, the Trust, it doesn't really suffer from that transition because Yantian margin is as good as Hong Kong. So overall, I think we did quite well. Obviously, we have refinancing done last year, which kind of increased our interest rates. And in 2026, we have 2 more refinancing to be done as well. And so we are definitely on the lookout on how interest cost is going to affect us going forward. But overall, as I said, we did quite well. Overall 2025 year-on-year from a profitability standpoint, we've done okay. I'll talk a little bit about DPU, obviously. We've decided on a full year distribution of HKD 0.115 per unit, which is slightly lower than what we had in 2024 of HKD 0.122. So it's about 4%, 5% decline versus last year. And there are a couple of reasons for that. Obviously, it is still within what I was hoping for. So we have done well on the profitability front. So our cash flow actually increased as a result of a higher profitability, but it is negatively impacted by 2 things. Number one of all, obviously, when we refi our average cost of borrowing increase last year, despite us paying down debt, that offset some of it, but interest cost, it has gone up, number one. Secondly, we're also impacted by the fact that Yantian starting with 2025, we've started with the making statutory reserve in our -- in Yantian operation, where previously with foreign joint venture, we were exempted from the statutory reserve. But because China changes company law, we are no longer -- Yantian is no longer exempted from making the statutory reserves. So we have to start making that 10% reserve in 2025. And that, in some sense, reduced our ability to dividend out almost close to about HKD 200 million in distribution, and that affected almost close to around HKD 0.02 of DPU right there. So in some sense, the profitability growth offset some of that statutory reserve requirement, and we ended up with a slightly lower DPU compared to last year. But looking at the upside, I suppose we have managed the interest cycle very well. Most of our borrowing were done 5 years ago when interest rates were around -- inclusive of the margin, we're paying close to around 2% interest cost on average. And with the refinancing, we're now looking at 4% to 5%. But I think with the final 2 refinancing done this year, we would have reached the -- I suppose we would have fully moved into the current interest cycle and with the expectation that Fed rates will come down, hopefully, further in 2026, I think this would be the peak of our interest cost in 2026 and maybe 2027. And if we can continue to grow on the volume and profitability front, then possibly 2025, 2026 will be kind of like the bottom year of our DPU and then we can start growing DPU again based on profitability. And looking out for 2026, so far, obviously, looking just in January alone, things are still good. Chinese New Year -- there's been a slight rush in Chinese New Year. But I think a lot remains to be seen what happens after Chinese New Year. Will U.S. pick back up again? Some of the new trade agreement that China will have with Europe, with Canada, will those pan out, meaning that will other trade continues to climb to offset some of the U.S. decline? Or will U.S. consumption kind of stabilize with interest rate coming down? All those questions will be on the lookout for in 2026 as well. But with those trade agreements that China will strike with the various countries, one of the things that we'll be on the lookout for is obviously on imports. Imports have been fairly weak for the last 2 years just because of the economic situation in China. So import has been on a decline. But I think that with these new trade agreements that China will have with Europe, with Canada, with rest of the world, I believe that China will not be forced, but they will be looking to boost up their import to honor some of these trade agreements. So we would be looking out for increases in import probably in the second half of this year. And currently, there is a large trade imbalance where our export outweighed our import almost 80-20. So there is a lot to -- room to grow in terms of the import size, and that's something to watch for both Hong Kong and Yantian. Hong Kong is actually quite suitable for import and the lower import is actually hurting Hong Kong. But if I talk about Hong Kong alone, last year, yes, volume has come down. But if I look at the silver lining of the Hong Kong volume, you would see that export and import coming into Hong Kong has actually remained stable. It has not declined any further, like what we have seen in 2023, 2024 after COVID. So the local market, import-export has actually stabilized in Hong Kong. What Hong Kong has been losing in 2025 was mostly transshipment volume as well as some intra-Asia volume, but mostly on the transshipment side. As I alluded earlier, a lot of that transshipment either shipped to Western Shenzhen or to Yantian. So whether Hong Kong 2026 will be kind of like the bottoming out of Hong Kong remains to be seen. But I think Hong Kong is -- has been in a transition over the last 2 years. And not just on the port alone, but on the whole of Hong Kong, I think the economy is starting to rebound a little bit. Property is on the rebound a little bit. And we're looking as to whether we can have Hong Kong kind of like remain stable this year and try to regrow that business together with Yantian going forward. So I'll pause here, and then I'll hand it over to Ivy to talk a little bit about the P&L, and then we'll move on to the Q&A. Thank you.
Ivy Tong: Hi, everybody. Basically, if we talk about throughput, as Ivor mentioned, Trust has done well for 2025. So throughput is at 23 million, 3% better year-on-year, with Yantian growing by 7% and -- but offset by the drop in throughput in Kwai Tsing by 6%. If we look at the revenue front, total revenue is at $11.9 billion, 3% improvement year-on-year. In terms of the segment information, pretty much the split between Hong Kong and Chinese Mainland is roughly comparable to 2024 with a 2% point increase in Chinese Mainland for 2025. On total CapEx, there is $445 million, a 20% year-on-year increase or equivalent to around HKD 74 million. The increase is just largely due to operational upgrades that have been carried out both at Yantian and Hong Kong, such as tightening our QCs and just making improvement to support our conversion to using remote RTGCs, et cetera. If we move on then to just look at our financial position on -- in terms of debt, what you'll see in 2025, the short-term debt has increased, but that's largely just due to the 2 guaranteed notes that we have expiring in 2026, one in March and then one in September time. But if you look at the total consolidated debt, because we have continued with our deleveraging program of repaying $1 billion loan, so the total consolidated debt actually dropped 4% year-on-year to around $24 billion. And without the increase in cash that Ivor mentioned earlier, the net attributable debt has actually dropped by 6% year-on-year to around $17.9 billion. As Ivor mentioned, the Trust will be declaring a DPU for the end of the 31st of December, 2025 at HKD 0.115, and we'll be making that distribution payment on 27th of March, 2026. So, lastly, I just want to go through quickly the Trust P&L. As Ivor mentioned earlier, in terms of revenue, we had a 3% year-on-year increase. In terms of operating expenses, we actually have a 1% improvement. So that gets us to a total operating expenses of around $7 billion with operating profit having an 8% year-on-year growth to $4.7 billion. As Ivor mentioned, well, despite the fact that we refinanced our debt in February at a higher rate, overall interest cost for the Trust actually recorded a 6% saving, largely because of the lower average HIBOR during 2025, which benefited from -- for our HIBOR-based bank loans plus the deleveraging that I mentioned earlier on the $1 billion repayment. So profit before tax is 12% better at $3.8 billion and then profit after tax is 13% better at $2.5 billion, resulting in a profit after tax attributable to our unitholders at $748 million, 15% better year-on-year. And that concludes our update on our results.
Ivor Chow: Let's move to Q&A.
Operator: [Operator Instructions] Mr. Herbert Lu from Goldman Sachs.
Herbert Lu: Can you hear me?
Ivor Chow: Go ahead.
Herbert Lu: Great. I'm Herbert from Goldman Sachs. At first, congratulations on these good results despite the disruption of trade in 2025. Actually, I have 3 questions. Sorry, I dialed in a bit late, so I apologize if you already covered these questions in your presentation. On the -- Yes, our net profit increased by 15%, while DPU is a bit lower than last year. I know your presentation attributed to the increase in the reserve set aside in 2025 for Yantian. Could you please elaborate more? And will this trend continue in 2026? And what's your guidance for the range of DPU in 2026? And second question is, I know it's difficult to predict the container volume, but I still want to check what's your outlook on 2026 container throughput and ASP? And the third question is on operating expense is down by $80 million year-over-year. What's the main driver?
Ivor Chow: Good questions. I'll start with number one first on the DPU side. And you're correct. As I said earlier, the net profit increase have given additional cash flow, but it is offset by the statutory reserve because of the PRC requirement. What the statutory reserves are, are basically kind of -- for all PRC companies, they are required to make a reserve for, let's say, welfare fund, staff fund and all that. Typically, it's around the 10% range, okay? So every company does it in China. But because we are a Sino-foreign joint venture, we have been actually exempted previously from making these reserves, okay? So the reserve is actually a percentage of the registered capital that every company has to make. So that's the first one we have to do. But because of the change in the company law in the PRC, Yantian, even though it is a Sino-foreign joint venture, is no longer exempted from making the statutory reserve. What the statutory reserve are is basically limitation of the amount of dividend that you have given out to shareholders and the cash will have to remain at the company level rather than distribute out to the shareholders in that sense. And so every year, we do expect that going forward, we'll have to make that reserve, which is around 10% of the profitability, net profit that we have every year. And this year, we expect the amount somewhere around $200 million. I think that $200 million will have to continue until we reach the statutory requirement of 50% of the registered capital. So that will probably take around 10 years or so. So if you look at around $200 million of cash flow that we are unable to distribute out from Yantian, that would translate to around -- roughly around HKD 0.02, HKD 0.025. But we have been able to offset that -- some of that decline HKD 0.025 by -- as Ivy said earlier, we have managed our interest costs better than we have expected because HIBOR is low this year compared to the U.S. rate. So we have actually benefited from that. But HIBOR actually has climbed back up -- and therefore, we do expect some of that savings that we have interest, to be not available in 2026 as well. So hence, overall, net-net, if you take a look at the increased profitability, a little bit less interest, but offset by that statutory reserve. Hence, our actual distributable cash is only about HKD 0.115. In terms of what I see next year, a couple of factors. Number one is interest costs, whether the Fed rate will reduce. The Fed rate will be an important factor, number one. Number two is, obviously, we have 2 refinancing to be done this year and the ability to refinance at a reasonable rate will have some impact on that DPU assessment. And number three, obviously, is the profitability, and I'll answer question number 2 later on. But -- and finally, depending on the overall market, the trade war, some of the things that we're watching for is the reopening of the Red Sea, whether the Red Sea conflict will be able to resolve and how that resolution will impact trading, will have a big impact on our volume as well. So that's something that we're watching out for as well. So those are the couple of factors that I looked at, that may impact DPU next year. But overall, I'm looking at somewhere between HKD 0.11 to HKD 0.12. And my personal target is try to kind of maintain that HKD 0.115, if I can, despite having that $200 million reserve going into 2026. But if we can have volume growth as well as managing interest costs better, then there may be a chance. So that's your question number one. In terms of question number two, in terms of -- obviously, it is quite difficult to forecast -- the world is extremely volatile, especially with the tariff policy and the various new trade agreements happening around the world. But overall, I mean, if we look at industry as a whole, for baseline every year, I do look at a low single-digit, maybe 1% to 3% type of volume growth every year. And I'm still looking at that. That's something we do try to achieve every year, be it from transshipment, be it from import or export. And the shipping market in general tend to look for that type of growth as well. So that's in terms of growth in Yantian. And obviously, Hong Kong, some sense of stability in Hong Kong would be good enough for me. In terms of ASP, ASP is affected by a couple of factors. Most of our ASP growth is obviously driven in Yantian. But if you talk about ASP because the renminbi fluctuation will have an impact on ASP, that's something to watch for and renminbi fluctuation is something that we cannot forecast. The second of all is -- has to do with the mix, the trade mix, whether the growth is focusing more on U.S., European trade or whereas the growth is focused on the intra-Asia trade and Middle East trade or the growth happening in the transshipment trade, all have an impact on ASP because the margins in U.S. and Europe is a bit better, whereas the margins for transshipment obviously is lower and that affects ASP as well. So these are the factors. But overall, are we seeing underlying pricing growth? Yes, we are trying to recover a cost increase through our tariff. That's something we always do on an annual basis when we renegotiate a contract with shipping line. But again, the underlying ASP may increase, but whether renminbi increase or decline or whether the different mixes increase will affect the overall [indiscernible] but I do see underlying ASP increase. And then -- and that's not something that only Yantian is doing. If you look at ports -- North and Eastern port in Shanghai and Ningbo, my understanding is most of those ports are looking for a pricing increase and some of them to the tune of over 10% because they have not had ASP increase over the last couple of years. And Yantian being a kind of a price leader in the market where we price according to supply and demand, obviously, our competitor raising the pricing is actually good for the overall market. So that's something I would say ASP is not overly pessimistic. Finally, on the operating expenses side, most of that saving is not really from the Yantian side, more from the Hong Kong side. Because Hong Kong, obviously, with the volume coming down, we have been having some of the facility kind of underutilized. So we've been saving a lot of operating costs, shaving a lot of costs as a result of some of that volume decline. So most of that operating cost is mostly from the Hong Kong side. Obviously, if there are more downside risk on the Hong Kong side, we'll look to further shave costs. But again, if Hong Kong can stabilize this year, then I do not see that we would be expecting kind of continuing reduction in operating costs.
Herbert Lu: Just a follow-up on the ASP. You mentioned the underlying ASP may increase for Yantian, that already factor in the box mix change? I mean, Yantian now has more exposure to transshipment volume, maybe -- which may have a higher -- a lower ASP actually. So you forecast the ASP to grow is already factoring in the change -- mix change?
Ivor Chow: Okay. So I cannot really forecast mix change. I -- When I comment on underlying ASP, it's just underlying tariff of the shipping lines, that is kind of like inflation adjusted or CPI adjusted or even low single-digit increase on some of it. How the renminbi change, or how mix change is difficult to forecast, especially individual trade -- will Europe -- again, what I said earlier with the various trade agreements happening, will trade between China and Europe increase and how fast that increase will -- will it offset -- will it be faster than some of the transshipment or MTs increase, is really hard to forecast. So I don't typically forecast mix change or renminbi change. I only forecast kind of underlying ASP change. And so the positive side is just on the stand-alone tariff.
Operator: Next question comes from [indiscernible] from HSBC.
Unknown Analyst: I hope I'm coming through well. So a couple of questions for you, Ivor, and then a couple of questions for Ivy. Firstly, if you could help us understand how the throughput has trended so far this year, whatever you possibly can share on how the trends are in Yantian and in Hong Kong?
Ivor Chow: Okay. So Yantian, as I said, overall, Yantian grew about 7% last year. First half was strong. If you look at the last results that we have, first half was quite decent mostly because of kind of front-loading to avoid the tariff. So we had a kind of bump of first quarter when people kind of rush out the volume ahead of the tariff. Second quarter kind of trend in line. But third quarter was actually quite slow. Third quarter was traditionally the peak season, but I think there was a lot of uncertainty as to what the Trump administration was going to do. There was a lot of uncertainty. Third quarter was quite slow. But I would say that fourth quarter was actually, in some sense, surprisingly strong. Not so much on the U.S. trade side, but Europe was a bit of a surprise. I think overall, Europe grew double-digit in the fourth quarter, helped offset some of that decline that we saw in the U.S. So it is quite volatile right now. Every quarter tracks differently just because depending on -- shippers now kind of take advantage of windows where they feel safe and windows where there's a volatility and they try to avoid -- it's very difficult to forecast. But so far, as I said earlier, January is looking okay. Pre-Chinese New Year there was still a rush in Yantian. But again, hard to say what's going to happen after Chinese New Year. Shipping lines are, I wouldn't say pessimistic because it varies. Some shipping lines are a bit more optimistic, some are a bit more pessimistic. There is not a lot of direction at this point in time. But I am a bit more confident that other markets will fare better than the U.S. market. But that can change in the flash. That's for Yantian. Hong Kong, as I said earlier, Hong Kong is actually stabilizing on the import-export side. We haven't seen decline last year on import-export. But Hong Kong has seen most of the decline on the transshipment side. And as I said earlier, most of the transshipment is either transferred to Yantian or some of them went to Nansha and Shekou. So Hong Kong did see continuing decline in transshipment. The lucky side of it is because transshipment tends to be lower margin, it doesn't hurt our bottom line as much, and we have been able to pick up the transshipment loss in Yantian. So overall, the Trust volume suffered, but Hong Kong is still negative on the transshipment volume decline side.
Unknown Analyst: Okay. That's very helpful. My second question to you, Ivor, is about the Yantian East expansion. If you can provide some update on where we stand on the project? When do you expect it to commence? And if there are any further capital commitments from the Trust side towards this project?
Ivor Chow: Okay. On the East Port front, yes, I forgot to mention that. East Port continue to be on track, on target. As I said on -- I think the last call as well, we are slated for trial operation in the first quarter of 2027. So we're still on target for that. And we have already completed all capital injection requirement into East Port. So there are no further capital requirement from the Trust.
Unknown Analyst: Okay. And then how much if you could remind us because this has been a project which has been in the work for quite a few years. When you start off in 1Q '27, what is the kind of capacity which will come through in the early phase? And how do you expect the ramp-up to phase through over the next few quarters after it commences?
Ivor Chow: Sure. Just a quick update on East Port. It's actually 3 additional berth in the eastern side of Yantian. So roughly around 3 million additional capacity. If you look at Yantian last year handled around 16 million TEU, which is a record high, by the way. And so that will add capacity to -- by about 3 million. So I would -- when we finish the whole East Port expansion, we'll be looking at kind of like a nominal capacity of around 20 million, which we're handling 16 million right now. We will be rolling out the first berth next year. So roughly around 1 million additional capacity with each berth. And then over the next 2 years, we'll expand and release one berth additional every year. And to help you think about how I think about capacity, right, if you think about Yantian, last year, we were doing 15 million. And this year we grew 7%. And we actually grew 1 million TEU this year. That's actually [indiscernible] requirement that we need in order to cater to the demand. So that just gives you a feel of how we think about capacity increase.
Unknown Analyst: Okay. That's helpful. And then maybe for Ivy, if you could help us understand what the CapEx will be this year for the Trust? And where do you expect to expend it? How much of that will be maintenance? I know in the past, you've mentioned that about $500 million is the maintenance CapEx irrespective of how trade spans out. But if you could help us revisit those numbers as well?
Ivy Tong: I think as we mentioned, we are currently still expecting maintenance CapEx to be around that $500 million ballpark figure. So this is what we will aim to maintain. So that's -- yes, so it's in line with the guidance that we have given in the past for 2026 as well.
Unknown Analyst: Okay. And finally for you, Ivy, you mentioned in the presentation that about 52% of the debt is fixed rate. Now of the floating rate debt, how much of it is more reliant on the HIBOR versus the U.S. policy rates? Or it doesn't matter and just depends on the overall interest environment?
Ivy Tong: Well, that -- I think that depends on the overall interest environment. But currently, all our floating rates are actually HIBOR-based loans. So...
Ivor Chow: Not fixed as U.S. dollar. And the reason why we have swapped some of the fixed floating -- fixed rate U.S. into HIBOR is just because HIBOR was a lot lower than the U.S. rates last year, and we benefit from that. But with HIBOR coming back up, we will have to manage the spread carefully. But for us, there is no exchange risk on either front. So we swapped just more opportunistically. And especially, we have actually moved away from a higher fixed component compared to before we're closer to 75%. We're moving lower down into the 50% range just because we've -- I think -- overall, I think the market agrees that the rate -- the current interest rate environment is past the max, and we could potentially be looking at slightly lower interest rate environment. So it would be beneficial for us to kind of maintain slightly more portion of floating in our portfolio.
Unknown Analyst: Okay. That's very helpful. And maybe if I can just squeeze in one more question. In the presentation, you did mention about headwinds to Chinese exports from the Mexico tariffs. We know about the U.S. relationship, but there were [indiscernible] -- first Mexico. Is that a significant route? Or is it still more U.S. and Europe exports? And if you could also remind us what the mix now is or in the second half it was for the trade exposure to Europe versus the U.S. trade lane?
Ivor Chow: Yes. Well, first of all, overall, Europe -- U.S. continue to account for about 30% to 40% export, with that number now closer to the low 30s compared to the high 40s before. Europe traditionally is somewhere around 25% to 30%. I think it's creep up 1 or 2 percentage point only. But transshipment has actually picked -- where it picked up a lot. Transshipment in Yantian went up quite a bit last year. So I think it went from around 15% to around 20% right now, yes, 20% to 25%. So the pickup is mostly on the transshipment side, and that affected ASP a little bit, kind of alluding to Herbert's question earlier. In terms of the Mexican tariff question is that, when the U.S. imposed tariffs directly on the country of origin in China, Chinese exporter try to, not circumvent, but they have increasingly set up their new manufacturing bases closer to the destination, be it Mexico, be it [indiscernible] Europe. So these tariffs that are put on to kind of intermediate manufacturing locations like Vietnam and Mexico, will indirectly affect trade to the U.S. So that's why we talk about the headwind, but it mostly affect the U.S. than anything else. But as I said, European trade so far, we haven't seen a negative. In fact, we have seen positive out of the European trade, I think partially because Europe, instead of buying from the traditional European exporter -- sorry, buying from the traditional European retailers, they're actually buying more from the e-commerce companies in China just because it's cheaper there. That has attracted a lot of European trade out of Yantian, where we handle a lot of the e-commerce business to Europe.
Operator: Mr. [ Paul Chew ] from [indiscernible] Research.
Unknown Analyst: Just some questions on the fluidity of the supply chain. Can you just elaborate a bit when you mentioned the gradual resumption of services from Suez Canal, is that what the major liners are preparing you for? And could you maybe elaborate on the impact if it does really open, are you -- is it just that there will be a short-term congestion in Europe that is what worries you?
Ivor Chow: So the question surrounds is what's going to happen with the Red Sea situation resolved. So if you look at the -- some of the news in the market is some shipping lines are already testing the Red Sea to see whether it is safe to pass through the Suez Canal already. Some lines are trying that. Just to kind of dial back a little bit. Right now, currently, almost all shipping lines from the Asia-Europe trade go through the Cape of Good Hope in South Africa. And that adds quite a bit of additional transit time into Europe. So that absorbs quite a bit of capacity [ after ] the market, and that allows the shipping lines to maintain freight rates that they have enjoyed over the last year or so. I suppose the concern here is that when the Red Sea does reopen, and the Suez is passable, then at that time, there would be ships going through -- around the Cape of Good Hope. But at the same time, there will be ship racing from Asia through the Suez into Europe. So there will be 2 sets of ships because the slot cost for shipping line going through the Suez is going to be cheaper. So the margins for shipping lines is better. And so people -- ideally, when it's reopened, everybody will rush through the Suez to try to reach Europe ASAP. I suppose, as you alluded to earlier, the concern is that what would it do to the ports on the European side. Currently, I think generally, there are port congestion in Europe already, even with the Red Sea situation. So the concern is on the Red Sea opens and there is a race to Europe through the Red Sea to the Suez, that would cause a major disruption to the ports at the destination in Europe. So that is a concern of mine, obviously. And whether the shipping line can withhold the capacity and not clock up the ports in Europe remains to be seen. But if there is a congestion, it could be a substantial one because the ships going to Europe are really the largest vessels in the world. So even 5 or 6 or even 10 vessels can potentially clock up the system, like they did during COVID for an extended period of time. And how that will impact the supply chain in terms of how you say the fluidity -- and whether some of that congestion will start to come back and hit Asia is something that I'm on the lookout for. But right now, it's really difficult to foresee when and if that will happen. The likely earliest that Red Sea will open will probably be in the second half of this year, but that is an event that we'll look out for.
Unknown Analyst: My second question is, I think in the prior call, you did allude that shipments to the U.S. by your e-commerce customers, they prefer to use ships because it's cheaper with -- even with the high -- because of the high tariffs, they're using ships. Do you still see that phenomena or that has maybe [ gone ]?
Ivor Chow: Well, I suppose what I saw in the second half, I suppose, obviously, U.S. trade has declined, so overall declined 10%. But I think if you look at South China versus the rest of the China, especially in Northeast, I think the decline would be higher than 10%. I don't know exactly the numbers, but as far as I know, I believe that the decline is a bit more substantial than 10%. And the reason for that, I believe, is that e-commerce because of our focus in the southern part of China, especially in Yantian, that has allowed us to be a bit better. And e-commerce continues to do well. That segment of the market, even the second half continues to do well. Obviously, that can change depending on the tariff situation and whether they tighten the tariff on the small package they are. But for now, that segment of the market continues to be okay, quite well, actually.
Unknown Analyst: My -- I guess my last question is, you did -- I think the first time [ probably ] mentioning some optimism over imports. Is it the similar sentiment that you get from the shipping lines or I guess it's more of your own analysis, yes, I think?
Ivor Chow: Right. On the import side, it's more of my own than anything else. We have been -- obviously, with the trade imbalance, we've always felt that China has more room to grow on the import side, especially import being a fairly small proportion of our business. But the relative margins for import and with the trade imbalance, shipping lines is much more proactive in terms of pushing for imports as well. And from my read on the macroenvironment with all these trade agreements that China is hoping to sign with European countries, I would expect that there would be a quid pro quo with a certain level of imports coming into China. But obviously, a lot of them depending on the recovery of the Chinese economy, but I'm a bit more hopeful on that front. So it's more of a personal, but I think shipping lines themselves, if there are imports, they're happy to take the balance because for them, empty -- full out empty in is not good for business.
Unknown Analyst: And just a quick follow-up on the earlier question. I'm not sure if you -- or maybe you do not disclose the amount of shipments that goes to Mexico directly, [indiscernible]?
Ivor Chow: Mexico directly, I don't have that number with me, unfortunately. Typically, for us, the Latin America trade is relatively small. I think it's somewhere between 10% to 15% only, at most 10% actually.
Unknown Analyst: But at the same time, I think in one of your statements, you mentioned Mexico might still impact you. But if the shipment -- the direct shipments are small there, how is it kind of negatively [ impact you ]?
Ivor Chow: Well, I think what we're seeing is that the growth of the Mexican trade has been quite strong over the last couple of years. So that growth will slow down. That's what we worry about.
Operator: [indiscernible] from HSBC Investment.
Ivor Chow: Can you hear us? No.
Unknown Analyst: Can you hear me?
Ivor Chow: Yes, yes. Please go ahead.
Unknown Analyst: I have 2 small questions coming from my side. First, I see end of last year, you have announcement saying that you need to sell back land to Shenzhen [ YPLES ] for the redevelopment of the region for around RMB 50 million. So I'm wondering how do you see this -- first of all, I'm wondering what's the use of this land in the past? And how do you see this sale may have impact for the expansion of your volume capacity in Yantian? And do you expect any other similar land arrangement in the mid-term? And second -- my second question is that for next year or midterm, should we expect similar debt reduction at this year, which is around $1 billion debt reduction? And will this be impacted by your increase of CapEx like what we see for this year?
Ivor Chow: So I'll take the first question and then Ivy can talk about the debt repayment. In terms of the land that we sell, back to the Shenzhen government, that piece of land is for -- I think I talked a little bit about last year, maybe I should repeat that here. Intermodal is something that is a strategy for Yantian for the next 5 to 10 years. Currently, we do have a dedicated rail link into Yantian in South China, where we have the -- where we're the only one that has an on-dock rail link into Yantian. But rail business only account for a fairly small proportion of our business to the tune of around 300,000 TEU, and we do 15 million every year. So it's quite small. But as I said, with China moving a lot of the coastal manufacturing into the inland, particularly in Chengdu, Chongqing, Wuhan area, increasingly, I believe intermodal will be kind of the future of where the share of the market in terms of volume, the competition will be. So the development of the rail link becomes quite an important preparation for Yantian [ view ] over the next 5, 10 years. But because rail business tends to be heavily subsidized business, it is not a profitable business. So the Shenzhen government has agreed to take back the land that we have, and they would be the one investing in upgrading the intermodal facilities that we have in Yantian. So they're I think they're investing to the tune of around [ RMB 7 billion ] in order to expand the rail link from roughly around 300,000 TEU to potentially to above 3 million TEU by 2029 if the rail upgrade is fully completed. Obviously, it's going to be done in different phases, going from maybe 300,000 to maybe about 1 million first and then slowly ramp up to eventually 3 million. So still -- compare 3 million to 15 million is still not a substantial number, but it is where the future growth for Yantian is, especially when I said earlier that we are completing the East Port development where we have 3 million additional capacity. So the rail becomes kind of like an integrated strategy in terms of expanding Yantian reach from currently around 1,000 kilometer to about 2,000-plus kilometer in land. So it is a strategy, and that's why we're selling that piece of land. So yes, we will continue to have -- I think we already -- announced already a piece of land that we have sold that we would have an impact to us this year. We have some gain. This year, we will be booking. But the important part of that selling piece of land is more of the long-term intermodal strategy for China, not just for Yantian, but for -- overall for China. And I think I talked about a little bit before, it's exactly what is like the U.S. is doing. If you have shipment into L.A. and Long Beach on the West Coast in the U.S., the rail becomes quite important of shipping that goods into the Midwest in the U.S. So I think for China, it's the same thing. Again, you talk about export coming in, but in future, there will be more import coming into Hong Kong and Yantian, connecting to rail to the inland part of China as well. And that's something for me, the rail -- upgrading the rail facility is paramount to capturing that particular growth market over the next 5, 10 years.
Ivy Tong: In terms of your second question, obviously, depending on how the operations pan out in 2026, it is still our intention to continue with our deleverage program to do the $1 billion repayment in 2026.
Ivor Chow: Thank you. And thank you for joining, everybody, tonight.
Operator: Ladies and gentlemen, as there are no further questions, this concludes today's conference call. Thank you for your participation. You may now disconnect.