TravelSky Technology Limited (OTCPK:TSYHY) Q4 2023 Earnings Conference Call March 27, 2024 10:30 PM ET
Company Participants
Huang Rongshun – Chairman and General Manager
Li Jinsong – Chief Financial Officer
John Xue – Head of the Finance Department
Yuan Leifeng – Deputy General Manager
Conference Call Participants
Kelvin Lau – DAIWA Capital
Qikun Wu – CICC
Xiaofeng Shen – Huatai Securities
Unidentified Company Representative
The conference will begin soon. The investors and analysts can view the TravelSky 2023 results and promotion materials at the Roadshow section or File section on the webpage. You can also view and download those materials at TravelSky official website, IR column. Thank you.
Ladies and gentlemen, dear investors, good morning. I’m the Board Secretary of the Group, and welcome to the TravelSky 2023 Annual Results Announcement Global Investor Online Conference. The results materials has been sent to your email before the conference, so please check your inbox and we look forward to your questions and communications with you.
First of all, I would like to introduce to you the participants of today’s conference. They are Chairman and General Manager, Mr. Huang Rongshun; Deputy General Manager and CFO, Mr. Li Jinsong; Deputy General Manager, Mr. Yuan Leifeng; Director of the Board Secretary; Mr. Chun Yu; and Head of the Strategic Development and Reform Department, Mr. Chen Pong; Head of the Marketing Management and Business Management Department, Mr. Yu Hui; Head of the HR Department, Mr. [indiscernible]; Head of the Finance Department, Mr. John Xue; Head of the Technology Management Department, Mr. [indiscernible]; Deputy Director of the Board Office, Madam Liu Jun and Deputy Head of the Capital Operation and Innovative Business Department, Madam [indiscernible]; Manager of the IR Relations, [indiscernible] and Accounting Manager of the Finance Department, Mr. Tung Bo as well as colleagues from the Board Office, the Finance Department, and the Market Operation and Business Management Department.
The conference will have two parts, the management presentation followed by the Q&A, and we’ll provide the Chinese, English consecutive interpretation throughout the conference.
First of all, I would like to give the floor to the Chairman and the General Manager, Mr. Huang Rongshun.
Huang Rongshun
Investors and analysts, good morning. Welcome to TravelSky 2023 results announcement conference. Here on behalf of the Board, I would like to express our appreciation for your long-term interest and support for the company.
In 2023, the global civil aviation industry has overcome the impact of COVID-19. There is a growing demand for travel by the public and China’s civil aviation industry has witnessed steady and robust recovery. So TravelSky is the primary provider of China air travels information technology solutions. We have stick to the overall principle of seeking progress while maintaining stability and focused on high-quality development. For 2023, net profit attributable to shareholders of the parent company totaled around RMB1.399 billion, up by 123% year-on-year. The Board recommended the distribution of a final cash dividend of RMB0.16 per share.
The company has seized the critical period of consolidating the foundations and achieving restored growth of the aviation industry. We have taken a scientific and coordinated approach and has achieved a good progress in business development, technological innovation and social responsibilities.
First, we have strengthened the recovery and development of our main business and tapped into the growth potential of the emerging businesses so as to maintain the momentum of high-quality development.
To be specific, in terms of the Aviation Information Technology Services, our ETD system has processed 620.1 million passengers for domestic and international commercial airlines. And the TRP solution supported the customer-centered business model of commercial airlines and we have signed contracts with 19 airlines. The ADA, which is our data integration platform solution, has been deployed in 17 airlines to help those airlines build a digitalized ecosystem. And the intelligent cockpit control system has delivered the first digitalized product that integrates cockpit management and production processes. And it has been deployed in our first customer, the China United Airlines.
In terms of accounting, settlement and clearing services, we have strengthened our expansion in the overseas market among the 30 certified overseas market-neutral settlement system services or BSP. It has been launched in 23 of them. And we provided settlement system services for Scoot Airlines, which is a major breakthrough for serving overseas low cost airlines.
In terms of distribution information technology services, we have achieved direct link and high-level networking to all GDS around the world and 142 overseas and regional commercial airlines. And we cover over 400 cities, both domestically and in the world. And our distribution network has reached 33 countries and regions overseas.
In terms of the airport information technology services, we have completed the construction of the departure platform for the Siem Reap International Airport in Cambodia, which is a major breakthrough in the international market and our smart product Facial boarding, the One ID passenger service platform and the civil aviation transit passenger service platform authorized by the CAAC have respectively been deployed in 54, 31 and over 230 airports.
And in terms of other information technology services, our air travel chain has received the CAC blockchain information service filing number. And based on the blockchain technology, we have launched the Declaration Pass, which is the China’s first civil aviation outbound data compliant product. Second, we have strengthened the technological innovation capabilities and advanced the major breakthrough in core technologies to inject more momentum to high-quality development.
In terms of independent control, we have made a breakthrough progress in dehosting of the core system and moving it to the cloud. Also, we have built supporting capabilities for the basic software and hardware compatibility for the industry and achieved a typical case of independent control under multiple scenarios.
In terms of innovation capabilities, we are the first among the civilization industry to be recognized as the national level business technology center by NDRC and other five ministries. And also we have been approved as the national level postdoctoral research workstation.
In terms of innovation results, we have been recognized as the national high-tech company for 23 consecutive years and we have been approved as the annual key software company for 17 consecutive years. And also we have received the first prize for civil aviation scientific and technological award for five consecutive years. And throughout 2023, we have received 118 patents. Third, we have actively fulfilled our social responsibility, strengthen the foundation for safe production and provide a strong support for high-quality development.
In terms of essential safety, we have maintained a stable operation and a safe production for 17 consecutive years. We have provided strong and robust support for civil aviation passenger information processing system during important events such as the Spring Festival transportation rush. The two sessions ended the China-Central Asia Summit and also we have achieved the industry-level real-name authentication for the world’s first large scale cross-civil aviation mainframe system and open system.
In terms of green and low-carbon development, the civil aviation data center green and the smart technology research and application project has been selected as one of the pilot programs for advanced and the low-carbon technology by Beijing municipality and has received the second prize as the technological and innovation award by the China Energy Conservation Association.
In terms of the philanthropic work, we have conducted 13 projects with a total input of RMB18.77 million. We have also helped 587 people with their employment difficulties and our employees have engaged in nearly 3,000 hours of volunteer work. 2024 is a key year for China’s civil aviation industry to shift from recovery to even higher quality growth and the bigger business scale. So faced with the new situation, the company will focus on our main business and main responsibilities, improve our essential safety level, and enhance the quality and efficiency of operation to further improve innovative capabilities and deepen reform and accelerate our efforts to make plans for the strategic emerging industries and the future industries.
Also, under government policies and guidance, we’ll continue to study and improve our work in the market cap management and we will conduct special campaigns to improve the quality of the listed company so that we can deliver even greater performance and returns to the shareholder and give back to the society.
To conclude, I sincerely hope that you’ll continue to show your interest and support for TravelSky and work with us to build an even better future. Thank you.
Unidentified Company Representative
Thank you, Mr. Chairman. And now I would like to give the floor to the Deputy General Manager and the CFO, Mr. Li Jinsong to give you an introduction of the 2023 financial results.
Li Jinsong
Dear, investors and analysts, good morning. Just as the Chairman has said, throughout 2023, civil aviation industry has seen an orderly recovery, which has laid a solid foundation for the business development of the company. So TravelSky system processed 620 million passengers throughout the year, up by 148.7% year-on-year, reaching 90% of the level in 2019. And the number of domestic passengers processed increased by 147.6% year-on-year, reaching 91.8% of the level in 2019. The amount of services provided to process information of passengers of overseas airlines increased by 240.9% year-on-year, reaching 41.7% of the level in 2019.
In 2023, the operating income of TravelSky has increased significantly. In 2023, our operating income totaled around RMB6.984 billion, up by 34% year-on-year. We achieved a net profit of RMB1.448 billion, up by 113% year-over-year. And the diluted earnings per share was RMB0.48, up by 128.6% year-on-year.
In terms of the major changes in the revenues in 2023, because of recovery in international and domestic travel, the amount of system processing has increased year-on-year. For example, the income for the AIT services was RMB3.85 billion, up by 149%. And the revenues for settlement and the clearing services was RMB447 million, up by 52.1%.
And for the system integration services, because of the completion time of the airport projects, the number of projects and the size of the projects of the system integration services is lower than the same period of last year. Therefore, the revenues for the system integration services was RMB994 million, down by 41.4%.
The data network revenue coming from our DIT services was RMB390 million, which is down by 5.3% compared with the previous year because fewer agents were using the service due to COVID. And revenues for other services was RMB1.3 billion, up by 3.3% compared with the previous year.
In terms of the major cost, because of a year-on-year increase in employee compensation and social security spending, the labor cost increased by 14.4% year-on-year. Depreciation and amortization relatively remain stable down by 0.9% year-on-year.
Because of increasing input in the R&D projects, the technical support and maintenance fees have increased by 12.6% year-on-year. Because of increase in the passenger volume and our promotion policies, the commission and promotion fees have increased significantly by 212.6%. And because after COVID the day-to-day operation and the business activities have increased, the other miscellaneous cost has increased by 39.9% year-on-year.
So compared with the unaudited financial report in the first half of the year, so in the second half of the year, our income was RMB3.68 billion and in the first half, it’s RMB3.31 billion, so in the second half it’s an increase of 11.2%. And for the operating cost, for the second half it’s RMB3.12 billion and in the first half of the year, it’s RMB2.18 billion. So it’s an increase of 43.4%. That’s why our profit is unevenly distributed across the first and the second half of the year. So there are more profits in the first half. That’s also the situation in 2021 and 2022 more fees and expenses and operating costs in the second half of the year than in the first half.
In 2021, the total operating cost in the second half of the year was 45.6% more than the first half and in 2022, it’s 59.5% more, and in 2023, it’s 43.4% more. So excluding the non-current profit and losses, as we look at the profit, in 2021 the second half of the year is 129.6% less than the first half of 2021 and in 2022, it’s 83.1% lower. And in 2023, the net profit in the second half of the year is 80% less than the first half of the year.
In 2023 for the whole year, we have achieved a very positive growth. In 2024, the company will seize the opportunity of recovery in the civil aviation industry and accelerate implementation of the innovation-driven strategy and further improved efficiency of R&D so as to achieve higher-quality development. Thank you.
Huang Rongshun
Thank you for the briefing. And now we’ll have the Q&A session and the meeting Secretary, please explain the rules and procedures.
Question-and-Answer Session
A – Unidentified Company Representative
So analyst and investors please prepare your question. And for those investors participating online, please input your question in the Q&A section and I will read it out for you. Thank you. And for investors dialing in, please press the asterisk button followed by pressing the one button, the number one, and please identify yourself before raising the questions. And please limit your questions to three questions and please raise them all at once. Looking forward to your questions. So the first question is through the phone and we have an investor from DAIWA.
Kelvin Lau
I am Kevin from DAIWA Capital. Thank you for the management for the introduction. I have three questions. First question is about the operating cost. Just now you said because of some promotion activities, the cost has increased significantly, what about the future? I think the promotion activities have been carried out to a large extent. So what about this year and the next year? Can you be more specific about this promotion thing?
And the second is about the bad debt. This year there are RMB300 million of bad debts. So will there be impairment for the bad debt? And in the future will there be a certain share or proportion of bad debt in your accounts receivable and will you set provisions for those bad debts or will resort to impairment? And the third question is about the system integration. You have said that you have signed more contracts, but this year because of the delayed completion of the projects, the revenues have declined. But I think with more contracts signed and with the projects already nearing completion, maybe we can expect higher growth in the revenue from this business next year. Is that right?
Huang Rongshun
So all these three are finance-related questions. I will address them to Mr. Li Jinsong.
Li Jinsong
Yes. First question about the promotion fees. Indeed in 2023, the promotion fees have increased significantly. That’s because after COVID in 2023, there is a quick recovery in the business and a quick recovery in the number of passengers. And for the increase in the promotion fees, an important reason is that we want to encourage the passengers to shift from checking at the counter or self-service check-in to – check-in at the mobile end. And I think that’s also the trend during the three years of the COVID pandemic, more passengers chose to have check-in on their mobile devices. So that’s why we have devoted a lot of resources to such promotions.
Another aspect is that our promotion policy aims to strengthen cooperation with domestic airports. We want to conduct a comprehensive cooperation with the airports in terms of smart airport services. Therefore, we have rolled out more promotion in this respect. And also it’s related to the third-party payment because the promotion is linked to the amount of the payment. So as the third-party payment is increasing, there are more promotion as well. So these are the main reasons for the increase in the promotion fees in 2023.
And the most important reason is that we have witnessed a rapid recovery of the market in 2023 after three years of COVID. And looking into the future for 2024 and beyond, there will not be major changes because – violent changes because the policy will remain consistent. But we are also looking into ways to further optimize the promotion strategy so that these promotion activities will further promote the sales of our existing products and to strengthen our cooperation with the clients. So this is about the promotion.
And the second question is about the bad debt provisioning. And our expected credit loss for the bad debt is RMB304 million. And this is calculated based on our ECL model. And for certain clients because they have a long account cycle or so we have separate provisioning for them. And this is consistent with our accounting principles. And for others, for example, rent arrears or gains from other businesses, we also adopted this principle of prudentiality. Therefore, we have set aside provisions for those bad debts. And our provisioning policies for the ECL remain the same and our accounting principle remain the same. And there will be changes, if there are changes in the factors that affect the provisioning. And it may lead to losses. And it has happened historically actually in the company and we have incurred some losses in history. This is about the second question.
And the third question is about system integration. So the main revenues from this system integration service mainly comes from the provision of software, hardware, and infrastructure services for the airports in its process of renovation and expansion. So according to our accounting policy, it is based on the completion of the project that we will recognize the revenues. But there are differences in the project starting time and the progress of the project. So the different airports have different completion time in their expansion and renovation projects. So there are more projects in certain years and less projects in others. And there are less in 2023 than in 2022. And we believe there will be more in 2024 than in 2023. That’s my answers to your three questions. Thank you.
Unidentified Company Representative
The next question is also from dial-in through the phone. And it’s from Wu Qikun, CICC.
Qikun Wu
Thank you. I have three questions. Around the beginning of the year, SASAC has introduced some rules around the market cap evaluation for listed companies of SOEs. So my question is, do you have any plans to change your dividend policy? Because I think there is sufficient money on your books, I think RMB1 billion is enough for CapEx spending. The second question is a hot issue nowadays about mobile communication. So do you have any plans around this area or any plans to cooperate with any partners? And the third question is a finance question. It’s around the data network. It seems that in the last year, the revenues have declined a little bit, but the market is actually booming. So could you explain why?
Unidentified Company Representative
And so the first question will be addressed to Mr. Li, and the second question for Chairman, and the third question to Mr. John.
Li Jinsong
First question is about market cap assessment or evaluation for the company and the SASAC has actually disclosed the relevant information to the public. So as an SOE under SASAC, we have responded actively to the requirement of SASAC and has been looking into this issue.
So for years, so we have incorporated the important factors for market cap into our evaluation system. For example, profits, income, ROE. And we are looking into this issue to incorporate the market cap evaluation into the overall company management with greater depth and width. So our main focus is to improve the essential value of the company, our innovative capabilities, our safety support capabilities, and the core competitiveness so that it will underpin robust market value for the long run. So that is our policy for the market cap evaluation.
And for CapEx, actually in terms of financial conditions, so we are able to cover the CapEx. And I think that’s a common feature for innovative-driven and IT businesses around the world. That is, we need to have sufficient resources for CapEx needs. Our main consideration for maintaining enough resources for CapEx is that it will enable us to find the opportunities in a changing market. We can use it to enhance our own capabilities to seize important market opportunities and some M&A opportunities so that it is essential for our development. Thank you.
Huang Rongshun
And I would address the second question about the low air economy. Actually, we have done quite a lot of work in this respect. And TravelSky has actually established our general aviation short-haul transportation information network. And with guidance from CAAC, we have built a digital solution that connects the regional routes and the general routes and connected the overall network. And we have also helped build and implement industry standards. So digital platform we developed has actually served 49 general airports and 44 airlines covering over 10 provinces, municipalities and autonomous regions.
We have built the general aviation management system to step up big data monitoring and the data sharing. Now we have over 40,000 accounts and over 10,000 licensed drone companies have joined the service. As the next step, as required by the CAAC to better serve the low air economy, we will better provide the digital solutions for the hybrid flights of manned and unmanned flying objects as well as the urban low air flights. And also we will cooperate with the relevant businesses, universities and the local traffic bureaus to launch labs and launch projects to better serve the low air economy.
Unidentified Company Representative
Okay. The third question is addressed to Mr. John.
John Xue
Okay. For the data network services and technical service, these are other services incomes. And for the reason why revenue for the data networking services has declined is because of the widespread use of new technologies and new modes. That’s – because of this, less agents are using our data network services. That will be the trend. So looking into the future, we will shift to some new models such as the access model and actually the revenues for the IDE data service has increased.
As for the decline in technological services, I think it’s because of delayed progress of certain projects, and I think it’s for the short-term. And for the mid to long-term, we will provide new products to airlines and airport agents. The development use of the new products will lead to increase on both the supply side and the demand side. So I’m not optimistic about the future of the technical services for the mid to long run.
Unidentified Company Representative
Next, dialing in from Huatai Securities, Mr. Shen Xiaofeng.
Xiaofeng Shen
Thank you, management. I have three questions. First is to follow-up on the CICC question about the market cap. We know that now the stock incentive plan has not been fully approved, so can you share with us the timeline for that? And the second question is about the cost, the labor cost. And in 2024, what will be the labor cost be? And what will be the average wage and the number of new employees? And the third is about carbon neutrality. So you have built the data center in order to reduce energy consumption. There are a lot of measures taken. And what are the measures? And what are the results? And will these measures results in higher cost? Thank you.
Unidentified Company Representative
The first two questions will be addressed to Mr. Li.
Li Jinsong
So the first question, I think the stock incentive plan is an important initiative in the SOE reform. I think it will provide good incentive for talents in key positions. So we will continue to follow regulatory requirements and carry through this work. As for the specific timetable, we will consider the relevant factors and develop the plans and submit it to the regulator for approval. And once it is approved, we will strictly implement the plan based on the regulators requirements.
Second question about the number of employees, actually that is based on the profit of the company and the business needs, and it will be adjusted on the dynamic basis. So based on our work plan, we’ll recruit the college graduates this year. So this year we’ll have reasonable growth, but overall the number will remain stable. And based on regulatory requirement, the total remuneration for the employees will remain the same despite increasing number of the employees. Therefore, the increase in the number of employees will not have a big impact on the overall remuneration.
And in terms of remuneration, the total remuneration for SOEs is subject to strict regulatory monitoring. And the increase in the total remuneration should be less than the increase in total profits. So while strictly follow the regulatory guidance, we will make sure that the remuneration growth is commensurate with the profit growth and to ensure a reasonable growth of the wages for the employees so that we will narrow the gap with the external market so as to attract and retain the talents. As an IT company, the average salary of our employees is way below the market average. So I think a reasonable increase in the salary will be beneficial for the talent development and also the long-term development of the company. Thank you.
Unidentified Company Representative
The third question about carbon neutrality will be addressed to Mr. Yuan.
Yuan Leifeng
Well, as for the carbon neutrality and the carbon peaking, we strictly follow the national strategy. So in the beginning of 2023, we have developed the carbon peaking plan, specifying the target and pathways to achieve the goal. And for data center, we have taken a series of measures to save energy and reduce consumption. For example, we have conducted professional energy auditing and have rolled out energy capping management. We’ve also identified the potential in some key areas in energy conservation.
Also for the data center, we have renovated some of the HVAC, the power supply distribution and the lighting facilities. We have developed our own energy management platform and introduced a smart operation model so as to improve the energy efficiency of the data center. Also, we have adopted some new technologies such as recovery of the residue, heat, and using recycled water for cooling purposes to improve the energy efficiency.
Also, we improve the energy efficiency by having a reasonable layout of the IT equipment in the data haul. And these measures we have taken at the data center has been assessed by the independent third-party institution to be globally advanced initiatives. And it has been recognized by MIIT and other five ministries to be recognized as a national green data center. And TravelSky has a big campus, which is 500 more. So apart from data center, there are also energy consumption from the office buildings, therefore, we have taken some other measures.
For example, we’re going to install the PV panels on rooftops, and also we are carrying out feasibility studies for a smart comprehensive information management system, which will go live sometime in the future. You are asking about the results, the results are pretty good, and the cost is not very big. Last year, it’s only RMB10 million. Thank you.
Unidentified Company Representative
To let more analysts and investors have the opportunity, we’ll extend the time of the conference. And for the investors and analysts, who are going to ask questions later, please limit your questions to only one. Next question is also from dialing in and Mr. [indiscernible].
Unidentified Analyst
A follow-up question on the cost. What’s your outlook for the technical support cost? Because I think in the second half of 2023, that cost accounted for around 10% of the revenue. So you will continue to invest in R&D. So what will be the cost outlook?
Unidentified Company Representative
This question will be addressed to Mr. John.
John Xue
Okay. My answer to the question around the technical support fees. So because we are information technology service provider, over the years, we have very high expenses in the technical support. It accounts for roughly 20% of the overall cost. The company will continue to invest in R&D and technical support so as to strengthen our core capabilities and competitiveness. So we are the primary information technology service provider for the industry and we’re also the national team. Therefore, we will continue to invest heavily in improving our core functions and core competitiveness so as to better serve the clients, to make sure that we will have a steady, stable and healthy development for the mid to long run. Thank you.
Unidentified Company Representative
So this question is from online investor. And the question is whether we will increase the per customer AIT price for the downstream airlines because I think it’s totally acceptable for the shareholders of the airlines? Because by increasing this price, it can improve the remuneration and salary of the TravelSky employees and strengthen the long-term competitiveness of the company. I will address this question to Mr. Yuan.
Yuan Leifeng
We follow the internationally accepted practice in charging the airlines. It’s based on the number of passengers. Over the years, we have together with the customer built a stable business cooperation model and the pricing mechanism has remained stable as well. For the short-term, we do not have any plans to increase the price. So in the future, we’ll continue to strengthen our innovation capabilities and launch new products to serve the market better. With the launch of the new products, the company will enjoy more profits and the employees will have higher salaries as well.
Unidentified Company Representative
Next question from [Louis, Citi].
Unidentified Analyst
My question is about any new project projects. Previously it’s about RMB1 billion, but now it’s RMB200 million. So there is a discrepancy. So could you give me some explanation?
Li Jinsong
So for the credit impairment, there are several aspects to it. For the credit impairment for third-party clients, we use the ECL model for calculation. As for the share of the provisions, if it’s within one-year, then it’s 6%; one to two years, it’s 18%; two to three years, 27%; more than three years, it’s 100%. And second is the single way provisioning. This is the single item provisioning and we’ll have separate ECL provisioning for certain clients with a very long cycle. At the end of last year in the principle of potentiality, we have set aside RMB180 million of bad debt provisioning for the clients with a very long payment cycle.
Also, we have provisioning of RMB172 million for certain clients who are going through legal procedures or who have very bad financial conditions. So overall, I think all these are long-term and stable clients of the company and we are still playing a dominant role in the market. So I think it’s very probable that we will recover those ECL losses. So the risk is under control. Thank you.
Unidentified Analyst
Can you clarify what was said on labor cost? The regular say that we should maintain total employee cost, but you later mentioned our average pay as an IT company is low and needs to be increased, so will our labor cost increase? Thank you.
Unidentified Company Representative
This question is addressed to Mr. Li.
Li Jinsong
Yes. I said that the salary level for our employee is way below the market average. And according to SASAC requirements, the growth or increase in the employee remuneration should be no more than the growth in the company profit. Actually for our labor cost, it mainly comprises two parts. One part is the employee remuneration, the salaries, it accounted for 70% of the total labor cost, and the rest 30% is the social security payment, the welfare treatment for the employees and education and training fees. This year, if our total profit increases, then with approval by the regulator, we can increase the overall salary of the employees, and that means our labor cost will be increased on the same proportion, but it will be no more than the increase in our total profit. Thank you.
Unidentified Company Representative
Next question from [indiscernible].
Unidentified Analyst
Thank you for giving me this opportunity. I have a follow-up question on the per customer price of the AIT business. Actually in the second half of 2023, we have seen a decline in the price. And my question is, is there a significant decline in the domestic airline routes? And usually the price will be lower in the second half of the year, could you tell me the reasons? Thank you.
Unidentified Company Representative
My question is addressed to Mr. [indiscernible].
Unidentified Company Representative
I will first answer to your question around the price of domestic routes. So in the second half of last year, the price has declined. It’s mainly because of changes in the number of passengers. In the first half of last year, the situation around COVID was still unclear and the passenger number was 279 million. And in the second half, it has grown to 383 million.
Based on our pricing strategy, the more number the passengers, the lower the unit price. And the reason why the unit price will usually be lower in the second half of the year is mainly because of changes in the passenger numbers. Because in the second half of the year, we have the summer holidays, the national day holidays, so there will be more passengers. Overall, our pricing strategy remains stable and there are no major changes. Thank you.
Unidentified Company Representative
This question is about China Merchant Bank Securities and he has two questions. First is about the R&D expenses in 2023. And the second is that, has noticed some significant increase in CapEx. So what’s the future outlook?
Li Jinsong
For the first question, our policies remain the same for the R&D expenses. In 2023, total R&D input was RMB1.3 billion, including RMB430 million of development spending. And because the capitalization of the R&D expenses need to follow very strict rules, so now the rules remain the same.
Next about CapEx, in 2023, we have a large CapEx around RMB1.2 billion. In a moment RMB300 million is invested in the system upgrading and the maintenance of those intangible assets. RMB295 million in fixed assets procurement for the R&D projects, and RMB330 million for the capitalization of R&D expenses, and RMB182 million of 5G fund, and RMB16 million for the upfront construction cost for building the campus.
Looking to the future, the company’s CapEx will remain stable. So based on historic data, usually it will be around RMB700 million to RMB800 million. And it will increase if the phase two of the campus started construction. Thank you.
Unidentified Company Representative
For the interest of time, we’ll stop here. If you have any more questions, please contact the IR team after the meeting.
Unidentified Company Representative
Thank you for your questions. For the interest of time, we will stop here. And to provide you with better services, you are welcome to scan the QR code on the screen and to fill in the questionnaire. We look forward to your suggestions and insights. Next, we will also organize and participate in online and offline activities. And if you have any other questions you are interested in, please contact our IR team, and looking forward to meeting you again.
To conclude, I would like to thank everyone for the participation. I would like to thank the Chairman, the management, and the colleagues for your time. Also, like to thank the event company and the interpreter for your support. And that’s the end of today’s conference. Thank you.
