Good day, and welcome to the ZTO Express First quarter 2024 Financial Results Conference Call. 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, today's event is being recorded. I would now like to turn the conference over to Sophie Li, Head of Capital Markets. Please go ahead. Thank you, operator. Hello everyone, and thank you for joining us today. The company's results and 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 Mrs. Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Mrs. 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 statement. 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, please. [Foreign language] Please allow me to translate for Chairman. Hello, everyone, thank you for joining today's conference call. In the first quarter of 2024, ZTO maintained its industry- leading service quality ranking with a parcel volume of 7.17 billion, which grew 14% year-over-year. We achieved an adjusted net profit of CNY 2.22 billion, representing a year-on-year increase of 16%. In the first quarter of this year, parcel volume of the express delivery industry increased by 25.2% over last year, far exceeded expectations. The booming development with frequent promotions by new live streaming e-commerce and social networks retailing helped stimulate online consumption and fueled the growth of express delivery volume. On the other hand, it also contributed to an increase in the proportion of low-priced e-commerce parcels. We firmly believe that the ultimate purpose of a business is to create value. ZTO insisted on healthy and sustainable growth, and chose to let go unprofitable parcel volume on the premise of base level volume necessary for scale leverage. In the first quarter, our market share contracted by 1.9 percentage points compared to last year. However, our leading level of earnings among industry peers further widened. ZTO's consistent strategy is to maintain balance in three aspects of growth, including service quality, profitability, and scale. At the beginning of 2024, we shifted our focus to service quality, while maintaining a healthy level of volume and achieving optimal profit. We placed more attention and resources on developing differentiated products and services to meet the diverse and personalized needs of customers, which will enhance ZTO's brand awareness and reputation. In the first quarter, we further improved our leading position among peers in the end-to-end timeline. The responsiveness of door-to-door and on-demand service capability of last mile have improved, and the increase in reverse and retail parcels significantly surpassed overall market volume growth. While proactively addressing the structural shift in consumption and express delivery price competition, we focused on our own expanded higher value customer base, increased the proportion of retail parcels, and enhanced the revenue structure. In the first quarter, our core express ASP decreased to CNY 0.04 year-on-year, which was significantly lower than the industry. Thanks to further implementation of lean management initiatives, our combined sorting and transportation costs per parcel decreased by CNY 0.06 compared to last year, and in combination with a stable corporate cost structure, both profit per parcel and total profit have increased. Entering into the second quarter, t he industry volume demonstrated strong growth momentum. Meanwhile, price competition remained fierce, particularly in major regions. ZTO remained firm on our strategic focus and execution surrounding the following main tasks. First, improve transit efficiency. Taking innovative approach towards a mature and established operating framework, rely on digitization and data analytics to drive process management and problem-solving. Focus on safety production, time guarantee, and resource utilization throughout the entire chain to improve quality and efficiency and reduce sorting frequency. Second, enhance product mix. Diversify and enrich express delivery services. Increase market penetration of distinctive products such as ZTO. Synergistically leverage ZTO Logistics ecological resources. Develop capabilities for comprehensive supply chain management. Refine differentiated product and services in order to increase brand awareness and recognition. Third, effectively address price competition. Stay tuned into market intelligence and take clear account of our own resources. Improve precision of pricing policy to become more case-specific, as well as fair and transparent. Fourth, strengthen last-mile presence. Drive firm implementation of last-mile profit- sharing strategy and increase the intake of retail parcels. Increase direct linkage between sorting center and last-mile outlets, last couriers. Freeing up delivery personnel to concentrate on servicing last-mile customers. Improve capabilities and cost competitiveness of last-mile posts, and offer solutions to serve non-video volumes. In turn, promote healthy development of the industry. Introducing commercial opportunities to existing express pickup and delivery traffic, so as to enhance last-mile economics. Fifth, empower franchisee partners. Improve communication, unify thinking, advocate balance between long-term and short-term interests, protect the rights and interests of outlets and couriers, ensure fairness of outlet of network policies, develop useful technology tools to help improve visibility to operational data, as well as convenience to conduct day-to-day. The shift from quantity-driven to growth in both quantity and quality for China's express delivery industry is inevitable. We have modified our strategic focus to prioritize service quality. The goal is to build new engines of growth and innovate greater competitive advantages with which to forge strong moat for ZTO's longevity. Standing at the turning point of industry transformation, everyone under the ZTO brand, including network partners and couriers, will work together to maintain aspiration and confidence, shore up competitive strength and ongoing relevancy. Through our comprehensive end-to-end capabilities and leadership role with inclusiveness, we intend to promote healthy competition and growth of the industry, maximize last-mile resource utilization, synergize common interests, hence creating value for industry participants, investors, and ultimately the society. Now, let's hear from our CFO, Ms. Yan, about our financial results and targets. Thank you, Chairman Lai, and thank you, Sophie. Hello to everyone on the call. As I go through our financials, please note that unless specifically mentioned, all numbers quoted are in RMB, and percentage changes refer to year-over-year comparisons. Detailed financial information, including unit economics and cash flow, are posted on our website, and I'll go through some of the highlights here. In the first quarter, while we paid more attention to quality of services and brand value improvements, we adhered to the principle of profitable growth and achieved a 15.8% increase in adjusted net income to reach CNY 2.2 billion. Our parcel volume grew 13.9% to 7.2 billion, representing a market share of 19.3%, which decreased 1.9 points compared to the first quarter of last year. An increase in the proportional share of lower-priced parcel, driven by frequent and deep discounts offered by e-commerce platforms, including live streaming and social network retailing, that stimulated consumption, prompted us to recalibrate effort and resource allocation between volume and profit. We limited the amount of incremental volume incentives for the quarter, and the ASP of our core express delivery business decreased 2.5% or CNY 0.04, which is well below the volume-weighted average ASP decrease of about CNY 0.20 for the top 4 Tongda players. Our total revenue increased 10.9% to CNY 10.0 billion. Total cost of revenue was CNY 7 billion, which increased 7.7%. Overall unit cost for the core express delivery business decreased 5.3% or CNY 0.06. Specifically, line- haul transportation costs per parcel decreased 7% to CNY 0.47, driven by improved resource utilization and route planning. Unit sorting costs decreased 5.4% to CNY 0.30, thanks to continued standardization in sortation procedures and improved labor and automation productivity. Gross profit increased 19% to CNY 3 billion, and gross profit margin rate increased 2 points to 30.1%. Consistent with gross profit, income from operations increased 16.2% to CNY 2.3 billion, and associated margin rate grew 1.1 points to 22.8%. SG&A expenses, excluding SBC, as a percentage of revenue, grew 0.1 points to 6%, given a stable and sound corporate cost structure. Operating cash flow was CNY 2 billion, which decreased 25.8% against a high base amount for first quarter, 2023. In first quarter last year, receivables collection increased during the process of KA accounts optimization. In addition, KA accounts for first quarter of 2024 included newly established headquarter-level platform customers who enjoys longer receivable terms. Our retail parcel volume grew over 40% year-over-year under the initiatives to increase higher value parcel. Adjusted EBITDA was CNY 3.7 billion. Capital expenditure totaled CNY 1.7 billion, and we anticipated, again, annual capital expenditure to be below CNY 6 billion. Now, moving on to our guidance. We estimated the overall industry growth to be around 15%-20% for the year, and we reiterate that our parcel volume for 2024 is expected to be in the range of 34.73 billion-35.64 billion, representing a 15%-18% increase. We remain committed to our balanced approach for sustainable and profitable growth. We have prioritized improvements in quality of services and development of differentiated products and services to enhance brand value and recognition. Under the near-term market dynamics, we aim to reach our earnings goal and then attain appropriate level of volume share. The above estimates represent management's current and preliminary view, which are subject to change. Now, this concludes our prepared remarks. Operator, please open the lines for questions. Thank you. Thank you. If you would like to ask a question, please press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press stars and two. We ask that you please limit yourself to two questions. At this time, we will pause for a moment to assemble our roster. Today's first question comes from Qianlei Fan with Morgan Stanley. Please go ahead. Thank you, operator. [Foreign language] Let me translate for myself. Thank you for taking my questions, Mr. Lai, Yan, and Sophie, congratulations on the very strong earnings growth. I have two questions. The first question is about what Mr. Lai has mentioned. In this year, we have strategically given up some loss-making volumes. What has triggered this strategic focus shift? What's your expectation on the industry consolidation dynamics going forward? My second question is about unit profitability. It's encouraging to see unit profit has increased year-on-year and quarter-on-quarter. If we assume competition strategy from peers to stay largely unchanged for the rest of the year, is it reasonable to expect unit profit expansion on year-on-year basis will continue for the rest of the year? Thank you. [Foreign Language] Thank you, very much for your question. Yes, indeed, we readjusted our focus on all three of our priorities. It is the reason for that change is because we want to focus more on longer-term profitable growth, given the market dynamics, as of now. Specifically, if I may supplement that the mix or the structure of the parcels in the marketplace included a greater portion of lower valued items, which in a way is a pressure or challenge to the profitability of all express delivery businesses. And yet on the other hand, our goal is to maintain profitable growth. So the strategy shift on one consideration is to avoid unnecessary volume. We increased our retail volume. We increased what we called effective volume to maintain our profit focus. And also in the same time, for the longer term view, quality of services is not just certain measurements, but more for recognition within our consumers' mind as they think about ZTO. Differentiated product and services is something that we must and we need to develop going forward, going forward instead of the marginalized competition. On the second part of the question, we will continue to maintain balanced growth. There is a saying in our business that loss-making parcels are avoided or strategically speaking, if it's unnecessary, we do not want to take in loss-making parcels. The overall industry growth is continued shifting towards quality and quantity. Our goal is to maintain or improve our proportional share on the earning side as well for the future growth. Thank you. [Foreign language] Thank you. Our next question comes from Lu Wei Zhang with Haitong Securities. Please go ahead. [Foreign language] How much has the proportion of the individual parcels increased in the first quarter of the company compared to the same period last year? How does the company view the prospects of the individual parcel market? What specific measures does the company take if you want to increase the penetration rate in the individual parcel market, including self-owned and the reverse logistics? Thank you. [Foreign language] Thank you very much for your question. First of all, as we mentioned earlier, our first quarter retail volume grow over 40%. Our daily average as of now is 5 million parcels, and included, which 3 million is our own, and then the rest, about 2 million is reverse logistics. One of the key initiatives through which we hope to increase and continue to see result is the way to free up our couriers. We installed certain machinery at our outlets. Once they reach certain level of daily volume, we require such equipment to be used so as to free up our couriers. Typically in the past, couriers have to go to their station or go to their outlets to help sortation, and then take their own parcels, their own meaning the region that they serve, take those parcels back to conduct delivery services, which is very time- consuming for the first step in order to get those parcels for themselves. So with those machinery installed, the couriers are able to focus around delivery and providing two- door services, including pickup as well. This year, we have a goal to increase our retail volume to 6 million parcels. Last year was less than 4 million. Our ultimate goal is to continue to raise this proportion and through mainly two initiatives. One is to ensure our couriers receive the front-end pricing benefit, so that they could certainly truly differentiate pickup and delivery fee income. Two, we want to improve the, w hat we call it, Direct Linkage, as I described earlier, so that the couriers can spend more time working within a shorter radius in their service area to help improve quality of services, including on demand, two- door delivery, and quicker response to pick up, so that they can improve retail ratio [Foreign language] Thank you. Thank you! Our next question comes from Ronald Keung with Goldman Sachs. Please go ahead. [Foreign language] Thank you, Lai Zong, Yan Zong and Sophie. Two questions, one is to think about the eventful express delivery industry landscape. If we are focusing more on profitability in the near term, but and less on expanding market share in the near term. But how do we think about in the next three to five years, will China's express delivery industry become more like a three, four players at similar scale, but consolidating to those three, four players? Or will we still expect it to be a one major leading player, followed by two to three smaller and the two, three, four? So some thinking and how strategy may evolve over the next three to five years. Second is, as the China market matures, how are we in our progress or thinking about expanding beyond China and going global? Any progress there or new strategies or thinking? Thank you. [Foreign language] Thank you for your question. First question relate to our strategy and specifically relates to our market share. As you know, we always focused on a balanced approach of all three focus area, meaning quality of services, earnings, and also volume. We still believe our goal of achieving 15%-18% growth is appropriate, given the current market environment. We're not to say that we don't want volume, we're only recalibrating the focus, because we think for the longer term, the brand recognition in our customers is more important for the long-term sustainable volume growth and profitable growth. In addition, the increase in retail volume or hence improvements in our revenue structure will help improve the profitability of outlets and couriers. We believe, after a period of time of our initiatives to improve their earnings capability, it will further stabilize our network and preparing for the longer- term growth. In a longer run, we believe we will continue to focus on our own affairs, i.e., any point in time, we will focus on: one, we want quality of services. We also seek profitability, and most importantly, the healthy growth depends on our business brand recognition. As a matter of how many are going to remain in the marketplace, or what are the proportional share taken by each players, is not something that we are able to determine right now. But we are sure of, what we are sure of is our own goal and focus. We want to continue to enhance and develop growth engines and enhance our competitive advantage. We believe it is those who are with scale, quality of services, and profitability that will grow continuously and sustain in a much longer term. The second part of your second question is relating to our international business. Throughout the years, ZTO has formed a rich cross-border product layout with business types including import, bonded, direct mail, freight forwarding, warehousing, export, dedicated line, et cetera. In Southeast Asia, including Cambodia, Laos, Myanmar, and Africa, Nigeria, Kenya, Uganda, Egypt, South Asia, including Pakistan, and some of the other regions, have all developed local express services on the ground. Given the rebound in the international business recently due to standardization and cross-border market price, the smooth expansion of new specialty line services are some of the things that we are exploring. The company will further attempt to develop international individual and boutique services, while strictly controlling cost efficiencies, seeking cost efficiencies, so that we are expected to further expand that part of our strategy of future growth. Thank you. Thank you. Our next question comes from Cesar Wu with Zhonghong Securities. Please go ahead. [Foreign Language] Thank you for giving me this opportunity to ask these questions. The first question is perhaps the most concerning and divisive topic in market right now. Can the express delivery industry structure be optimized? We have always believed that the express delivery industry has economies of scale, and the strong will remain strong in the future. However, the growth rates of package volume last year and the first quarter of this year do not seem to support this judgment. We found that the share of second-tier companies has increased significantly, and cost optimization seems to be accelerating. We'd like to ask how you view the pattern in your predictions of the express delivery industry, and whether market share will still be the core goal in the next five to 10 years. Is service quality or profits more important than market share? Where is the bottom line of our templates for market share? Second question is, how long does our company expect to take achieve consumer awareness and product upgrades? What goals we want to achieve in the long term of the future? Thank you. [Foreign language] Thank you very much for your question. First relating to the market share dynamics going forward, it is important to view an express delivery company or any express delivery company on all three aspects not just only on market share. Those all three aspects are volume, certainly, profit, and importantly, quality of services, because we are looking at the express delivery business growth as a marathon. Of our shift in the focus of our all among all three is specifically for the purpose of a longer-term growth. Indeed, our first quarter market share has decreased, but yet we are also looking at the healthy level of our quality of earnings, and including the quality of earnings of our network partners. We think the longevity of a business depends on balanced growth of all these three areas and focusing more on our own capability, for much longer future growth, including developing consumers' awareness of our brand and, and the value recognition, will help us achieve greater market presence with healthier earnings and hence richer product and services. So this goes into the second part of the question. We are continually, continuously leading in the quality of services. We hope in the future that we will become one of the top choices among the players of industry, including Shunfeng and Jingdong. Our goal is to pull apart or pull away from the homogeneous competition, specifically only for pricing among the Tongda players. With our balanced growth in our own business, it's not to say that we don't want volume. Volume is important, especially for a scaled business model. Our first quarter, including today's daily volume, is between CNY 95 million-CNY 100 million, so that our scale leverage and cost productivity gain will continue to demonstrate. The entire industry, with its current growth and what we anticipate for the future, which is going more towards quality and quantity together, the profitability will gradually release. As you know, compared to developed country, the GDP, cost of logistics as a GDP, percentage of GDP, is still, not as efficient as, those developed country. With our country's focus on going into the factory, going into rural area, as well as going overseas, there are huge opportunities, represented towards, comprehensive logistics growth. Express delivery industry, with its scale and network resources already in place, has huge advantage under such development, scenario of the future. We believe we will continue to focus on our own balanced approach and growth, taking shares where we need to and must, but focus more on quality and quantity together will be a sustainable growth in the future. Thank you. [Foreign Language] Thank you. This concludes our question- and- answer session. I'd like to turn the conference back over to management for any closing remarks. Thank you again, everybody, for joining today's call, and we look forward to speak with you offline when you have further questions. Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.