Good day, and welcome to the ZTO Express Third Quarter 2023 Financial R esults Conference C all. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Sophie Li. Please go ahead. Thank you, operator. Hello everyone, and thank you for joining us today. The company's results and the investor relations presentation were released earlier today and are available on the company's IR website at ir.zto.com. On the call today from ZTO are Mr. Meisong Lai, Chairman and Chief Executive Officer, and Miss Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Miss Yan, who will go through the financials and guidance. They will both be available to answer your questions during the Q&A session that follows. I remind you that this call may contain forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and the current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties, and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events, or otherwise, except as required under law. It is now my pleasure to introduce Mr. Meisong Lai. Mr. Lai will read through his prepared remarks in their entirety in Chinese before I translate for him in English. Meisong Lai. [Foreign language] [Foreign language] Thank you, Chairman Lai. Hello, everyone. Thank you for joining today's conference call. For the third quarter of 2023, ZTO's parcel volume was 7.52 billion, which increased by 18.1% and expanded our market share to 22.4%. We maintained our industry-leading service quality and achieved an adjusted net profit of CNY 2.34 billion, representing a 25% year-over-year growth. In the third quarter, China's express delivery industry maintained relative vigor and grew its volume by 16.7% year-over-year. At the same time, low price for volume trade-off became rampant. Facing disruptive price competition, ZTO adhered to its consistent strategy of maintaining a high level of service quality, achieving targeted earnings while advancing our market presence. The company shored up defenses and exercised discipline around no-loss making volume, and put our main focus on firming up network stability and long-term competitiveness. The following are some of our key initiatives. Firstly, we place a great deal of emphasis on end-to-end timeliness by enhancing digitization tools to initiate interferences needed to manage operating processes. Quality standards for each of the key steps throughout the flow of package ensured quick discovery of root causes to defects, resulting in improved end-to-end timeliness and overall customer satisfaction. At the beginning of August, severe weather brought floods in the city of Zhuozhou and suspended the operations of our Jingnan center for nearly a month, causing property damages and loss of packages. Facing natural disasters, we actively coordinated major nodes and modified routes to divert parcels to minimize negative impact on overall service quality across our network. ZTO's end-to-end timeliness returned to the top of the industry in September. Secondly, while steadily improving service quality, we continuously seek optimal balance between improving timeliness and reducing costs. Cost efficiency gain in this third quarter once again exceeded expectations. A further refined assessment system raised the level of standardization and enhanced the ability to isolate relevant workstation or individual task operator. Through visibility, comparability, and reward or reprimand, we promptly and effectively identified anomalies, optimized and rectified them with precision, and improved overall operational efficiency. Thirdly, we helped to upgrade the capability and the capacity of partner outlets, which serves as an integral part of overall efficiency of the entire transit process. We provided technical input and implementation oversight on design and construction process, safety measures, service quality measures, and information management, so as to improve our partners' operational efficiencies and last-mile connectivity. The express delivery industry in China has undergone 30 years of development and is at a critical turning point. Despite frequent shifts in competitive landscape, leaders of undisputed advantages have clearly emerged. ZTO has consistently produced healthy and sustainable growth and focused simultaneously on service quality, customer satisfaction, and brand value with long-term competitive strength. Going forward, in accordance with a healthy pace, we will continue to strengthen our network foundation, enrich product offerings, and innovate operations. The following are five of our key initiatives. First, we will advance forward the implementation of marketing initiatives and encourage network partners to pass market pricing to couriers in order to incentivize pickup responsiveness, therefore increase non-e-commerce volume. Second, we will accelerate the expansion of our last-mile presence with Tuxi Life Plus to reduce pickup and delivery costs, enhance in-person delivery fulfillment, and improve network partners and couriers' profitability. Third, we will continue to refine digitization processes and tools, disseminate data analytics across frontline operations, and elevate process management from postmortem to predictive, and drive greater effectiveness. Fourth, we will improve economic output of infrastructure investments by more scientifically aligning long-term growth planning, capital budgets, installed capacity, and utilization optimization. Fifthly, we will continue to strengthen our e-commerce-driven core express delivery business by introducing differentiated time-definite products. Meanwhile, we will respond to varied emerging market demands by designing and providing innovative products and services capabilities, advancing forward towards comprehensive logistics strength. During the recent 11.11 shopping festival, ZTO reached a new milestone with daily parcel orders surpassing 100 million for consecutive days, which peaked over 160 million. Our leading timeliness performance led to the way to excellent quality, faster delivery, high volume, and stable pricing. We leveraged our strong capacity and streamlined operations to maximize scale and efficiency. This not only proved the effectiveness and the sustainability of our strategic approach, but also instilled greater confidence in our ability to execute for long-term excellence. China's express delivery industry is undergoing a distinctive dynamic shift, where volume is further concentrating, yet quality continues to diverge, where the better and the stronger are rising to even higher ground. With comprehensive strengths we built and accumulated over the years, such as superior service quality, stable partner network, high profitability, and stronger capital reserves, ZTO firmly stands in the leadership position. We will continue to strive for balanced increases in all three of our strategic objectives of quality, earnings, and scale going forward. With the help of technology, we will focus on long-term initiatives such as diversifying products and services, reducing transit frequencies, improving direct linkage across sorting centers, outlets, and last-mile posts, therefore fortifying our competitive edge. Embarking from the newest milestone of our 100 million parcels a day, we are committed to create increasing value to all participants in the success of ZTO, including customers, employees, partners, suppliers, and investors, as well as the country and society that have nurtured our growth and development. With that, let's welcome our CFO, Ms. Yan, to review our financials. Thank you, Chairman. Thank you, Sophie. Hello to everyone on the call. Allow me to take us through the financials and then guidance. Please note that unless specifically mentioned, all numbers I will be quoting are in RMB, and percentage changes refer to year-over-year comparisons. Detailed financials are of our performance, unit economics, and cash flow are posted on our website, and I'll go through some of the highlights here. In the third quarter, ZTO maintained profitable growth, thanks to sound execution of our consistent corporate strategies. Parcel volume increased 18.1% to CNY 7.5 billion, and our adjusted net income grew 25% to CNY 2.3 billion, while we maintained high quality of services and customer satisfaction. Total revenue increased 1.5% to CNY 9.1 billion. ASP for the core express delivery business decreased 13.5% or CNY 0.19, mainly driven by mix shift impact from the decrease in the proportion of KA volume, increase in volume incentives, and lower average weight per parcel. We cranked up incentives to the extent necessary to protect existing market share as we faced radical price competition during the quarter. Our quarterly market share rose slightly by 0.3 points to 22.4%. Total cost of revenue was CNY 6.4 billion, which decreased 2%. Combined unit cost of sorting and transportation decreased 11% or CNY 0.09, benefiting largely from economies of scale. In addition, unit cost of line haul transportation decreased 11.4% to CNY 0.43, driven by more effective route planning in conjunction with load rate improvements without negatively impacting timeliness. Decreases in fuel prices also helped. The decrease of 10.4% of CNY 0.20 to CNY 0.25 per unit sorting cost came from the increase in level of automation, as well as labor efficiency gains achieved through standardization in operating procedures and optimization of performance metrics. Gross profit increased 10.7% to CNY 2.7 billion as a combined result of increased volume, offsetting ASP decline, plus added benefits from cost productivity gain. Gross profit margin rate. G ross profit margin rate increased 0.5 points to 29.8%. SG&A expenses, excluding share-based compensation as a percentage of revenue, dropped 0.1 point to 4.8%, demonstrating a healthy and lean corporate cost structure. Income from operations increased 11.4% to CNY 2.4 billion, and associated margin rate grew 0.4 points to 26.7% as we continue to improve quality of earnings to reach a level better than 2019, which is prior to the COVID-19 pandemic. Operating cash flow was CNY 2.94 billion for the quarter, and EBITDA was CNY 3.45 billion. Capital expenditure totaled CNY 1.3 billion, and we anticipate annual CapEx in 2023 will come in below CNY 7 billion. We are on track to achieve another year of free cash flow. Now, moving on to our guidance. We have previously guided 1.5 percentage point annual market share gain, and we strived to achieve such goal up until it became no longer justifiable, considering the extreme price competition during the quarter. We made a decision to hold our ground and to then turn our attention to more longer-term gains, such as improving end-to-end timeliness by reaching deep for operational effectiveness and efficiencies. Market share gain will continue to be one of our key measures of growth, yet it cannot be obtained by causing unnecessary losses to our bottom line as we further our balanced approach to all three aspects of our corporate strategies. On that note, the company reiterates that its parcel volume for 2023 is expected to be in the range of 29.27 billion-30.24 billion, representing a 20%-24% increase year-over-year. These estimates represent management's current and preliminary view, which are subject to change. Now, this concludes our prepared remarks. Operator, please open the line for calls and questions. Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. We ask that you please limit yourself to two questions. At this time, we will pause momentarily to assemble the roster. Our first question comes from Qianlei Fan of Morgan Stanley. Please go ahead. [Foreign language] Thank you for the presentation, Mr. Lai, [Foreign language] and Sophie, and thank you for the opportunity to ask the question. Congratulations on very solid results despite industry competition pressure. I have two questions. The first one is about the competition strategy. We noted that the company year to date has achieved very balanced growth in terms of profitability and market share gain. But we do notice that the competition strategy from peers may have changed. Some of them seems to be quite difficult in terms of profitability in their third quarter results, but some of them also reiterated that next year their priority will be market share gain in terms of profitability. So, the question is, what's the competition strategy from our company in the first quarter of this year and into 2024? Do we still think the target that profit growth to be faster than volume growth and our market share will continue to grow versus peers is achievable? My second question is about the dividend payout. So we do notice that the CapEx has decreased on a year-on-year basis, and the free cash flow remains very healthy. We did mention that we have the intention to increase the dividend payout to reward our shareholders. Do we have a higher visibility on the dividend payout for our full year after our full year results next year? Thanks. [Foreign language] Now let me first answer, translate the first question for Chairman. The first question relates to the competitive outlook. We've always focused on our long-term growth, because we understand that express delivery business, the industry nature is a long-term marathon instead of a short sprint. ZTO has consistently focused on our three aspects of the corporate strategy. We maintained the principle that we don't do loss-making businesses. So consistently in the past, we have been able to adhere to our three-pronged approach, which is conditioned upon quality of services and targeted earning goal achieved, we will improve our market share. So that still stays the same, is consistent going forward. Now, given market dynamic changes, however, we always believe the strength of quality of services and capacity to deliver such high quality of services will continue to draw our customers and draw market share, and timeliness and customer satisfaction, and also the brand awareness will continue to be our focus going forward. And we believe from a strategic standpoint, that will further expand our goal. Again, market share will remain. Now, what you mentioned specifically, profit, volume and market share development is always going to be a balance, and we still believe we are confident to achieve the goal that we set. The second part of question, I'll answer that the business is operating in its optimal and continue to go up to the higher, increase in the higher level. So the CapEx spending for our core express delivery businesses is, pretty much set. So as we look into developing our comprehensive logistic capabilities, there might be some investment cycles come through, but now, now what we are looking at is being gradual and not all of a sudden, right? So it's a matter of time for us to raise our dividend payout ratio, because it's-it is our clear objective to return capital, return the investment to our shareholders. Thank you, thank you, [Foreign langauge]. The next question comes from Ronald Keung of Goldman Sachs. Please go ahead. [Foreign language] [Foreign language] Thank you for your question. Let me translate it in English. I think in terms of the current competitive landscape, while it's been quite concerning, but we've actually done really well and earnings have grown healthily, and we also have generated free cash flow. So, this outperformance versus peers means how should we think about the landscape from here? If we could capture very healthy earnings and cash flow, should this actually strengthen our position into the longer term? So, are we trending well, even in this competitive environment? And how do we see the outlook for 2024 as a result and our strategy? And my second question is about our Southbound Connect potential. We see, some of the limited trading volume in our Hong Kong shares, might have caused a later than expected Southbound Connect. Are there any, proactive steps that management could take in expediting this, Southbound Connect potential? Thank you. [Foreign language] [Foreign langauge] [Foreign language] Thank you, Ronald. So, let me translate for chairman for the answers. As far as competitive landscape, we think the long term trajectory is continued to stabilize. As you can see that the number in the marketplace about eight or nine, but we don't think there are major changes. However, the diversification, I should say, the bifurcation, is becoming more and more apparent where you have advantage in cost, efficiency and quality of services. Those will eventually win a more market share and increase market presence. In the past, we've always focused on all three, and those continue to be our focus. And relatively speaking, however, as we see that the development of e-commerce, the overall profit is meeting resistance because of the price competition. So, offering more diverse product and services, for example, increase the non-e-commerce packages, also servicing more of the reverse logistics or return packages, will help us improve the earnings of our network outlets as well as our couriers. So focusing on those areas, improving the network stability, at the same time improving our overall capability of serving not just e-commerce packages, but including a higher percentage of non-commerce packages, will help us deter or offset some of the impact from the e-commerce concentration. So in other words, we do believe out of the three, relatively speaking, we will focus in that regard, more of the enriched product offering and varied revenue structure, so that it could propel us forward into the future, where we maintain a high level of quality of earnings and at the same time increasing our market share. The second question relates to the strategy of going into the [Foreign language]. We think that we will continue to maintain high quality of operations, and that is really the key, increasing our volume of trading of liquidity. This is somewhat more determined by some of the metrics or measurement. The company has been included in the stock inspection scope of the Stock Connect. The adjustment window for the Stock Connect is in March and September each year, and according to the policy measurements during the measurement period, we must meet certain standards of trading volume and so on so forth. We believe we have, based on current information, a high probability of being entered or admitted into the Connect by next year in March. Thanks, Ronald. The next question comes from Aaron Luo of UBS. Please go ahead. [Foreign language] Let me translate myself first. Thank you, Mr. Lai, Miss Yan, and Sophie for taking my question, and congrats for the solid Q3 earnings。I got two questions. One is about our capacity utilization. As you mentioned earlier, we achieved the peak daily volume in Double Eleven to around like 160 million parcels. And I'm a bit curious to what our ideal capacity utilization rate is? And what's our like CapEx expenditure plan going forward, like in next couple of years? And the second question is about our like long term, more about our long term strategy to focus more on the mid to high end parcels, like as Mr. Lai mentioned earlier, the business parcels or the individual parcels. So what's the development so far? What kind of expectation we should have, like the share, the volume share in kind of go like to what percentage going forward? Thank you so much. [Foreign language] [Foreign language] Okay, the first question relates to our optimum capacity. We've always focused on infrastructure development, and we are one of the players, or in amongst all the industry players, we are the one with the highest level of self-owned facilities and also transportation fleet. We have currently, after the Double Eleven, achieved over 100 million day level, and that is the current most optimum capacity, because that is where our cost is the most effective or efficient. We have throughout the years, invested and built infrastructure and in across the whole country, especially in the key major nodes or major cities across the nation. Compared to the past, this year, our CapEx spending is gonna come in below CNY 7 billion, and for next year, will be somewhere below CNY 6 billion. We believe some of our facilities do require upgrades, and some have a phase two or phase three that could be easily developed to double the capacity. So, actual investment will most definitely taper down. The third question relates to our diversified product offerings. The current year, our standardized packages, the increase in its volume has way surpassed or much faster than our regular express packages. So we do believe we have built up a momentum to increase, within express delivery, a time-definite product, and outside, focusing on developing more of the non-e-commerce packages. We do see this as a key initiative, because it could help us improve the quality of earnings by our network partner and also couriers, as we ensure the couriers receive the market front-end pricing, instead of the same pricing given for regular express delivery packages, so that they are more motivated to work for themselves to improve their customer connection, and also improve quality of services. We have made it a mandate, and put measurements around the to door pickup, so that they are more timely and they are more responsive. In this overall approach, without disclosing the specific percentages, we do believe we do want to have this varied product offering, and at the same time, it could come back and help us improve the overall earnings and also quality of earnings for the all the players, including us and also the network partners and couriers. [Foreign language] Thank you. The next question comes from Yang Xin of CICC. Please go ahead. [Foreign language] The first one is about reverse logistics for e-commerce parcel. Because we know this kind of business requires a higher service quality and well generates higher return. So, can you share with us our volume in terms of this kind of business and our future strategy? And the second one is about our last mile facilities, such as Tuxi parcel supermarket, as Mr. Lai mentioned in his speech. So can you share with us the current state how many of these facilities you have built? And is there any targets for us in the future? And also, it would be very helpful if you can share with us the benefits of these and the benefits to our courier guy in their daily operation. Thank you. [Foreign language] [Foreign language] The first question regards to the reverse logistics packages. So nowadays, if we look at the combined volume of all major players or major platform of e-commerce, the return volume is somewhat every day around 10 million. So the increase in these the proportion of these packages really rely on, or is dependent on how fast we can respond to pick up and how well the service is provided. It's because we saw this significant volume in the marketplace, we have started to pay more attention and tries to improve our ability to respond. For example, the two-hour average pickup time window, we are developing capabilities to pick up even faster within and shorter than the two hours. So we think that the continued focus and also the exercise or training of our capacity or capabilities to pick up on a more timely basis has helped us to improve the development of our that side of the capability, and we have seen the increase in the reverse businesses volume at a very promising and fast pace. The second part regarding the last mile development, we currently have over 10,000 locations under the brand of Tuxi Plus, and our target is to grow even more. And the benefit is really severalfold. First of all, as we could allow our couriers to receive the market price, in other words, they are working for themselves, and they are not only able to improve their sales or improve their earnings, but they could also be motivated to provide better services and develop better connectivity with the customers, with their customers. The key benefit for the industry as a whole is that we could indeed utilize the last-mile post or presence to help the entire industry to reduce the delivery cost. As the concentration of the delivery packages increases, as volume increase for the marketplace, we think that continue to hire people to deliver is not feasible. So the role of last-mile post place is to help reduce the delivery cost and develop better linkage, develop more timeliness and responsiveness of our customer services. Within its radius, we think the pickup and the drop-off by consumers to have their packages shipped will continue to evolve, and then the penetration ratio or the proportion of such packages being dropped off or being picked up at the post will increase. And then secondly, we think it would provide opportunities for the last-mile service, not just express deliveries. It would have other services within the local settings. For example, opening the locks or delivery other life necessities. So this is a comprehensive service point, where the consumers will have much better stickiness to those locations. And this is a strategy that we will continue to further as we not only build the infrastructure for the industry, but also provide better, faster, more responsive services to our customers beyond express delivery-related services. [Foreign language] So, operator, I believe this will be the last question we can take. And once again, thank you, everybody, for joining today's call, and we look forward to have further discussions with you all. And thank you, and have a great day and great evening. The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.