Good evening, and welcome to the ZTO to announce first quarter financial results on May 20, 2020, conference call. [Operator Instructions]. I would now like to turn the conference over to Meisong Lai, Chairman and CEO. Please go ahead.

Thank you, Operator. Please allow me to read the safe harbor first. Hello, everyone, 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 Ms. Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Mr. 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'll remind you that this call may contain forward-looking statements made on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and 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.

Thank you, Chairman. Please allow me to translate first. Hello, everyone, thank you for joining us for today's conference call. Considering the impact of the COVID-19 pandemic during the first quarter, ZTO's overall performance was better than expected. We achieved a 2.37 billion parcel volume and CNY635 million of adjusted net income. Our market share went up slightly to reach 18.9%. Benefiting from the national toll-free waiver and the declining global oil prices, our combined sorting and transportation costs per parcel decreased 13.1%, partially offsetting the ASP decline in the first quarter. During the pandemic, the express delivery, as one of the backbone industries to support social stability, returned to normal operations ahead of many other industries, thanks to strong policy support. The industry parcel volume growth recovered to 23% in March and further improved to 32% in April, which was faster than last year. Online retail sales of physical goods grew 5.9%. In the end, total China consumer retail sales fell nearly 20% in the first quarter. On one hand, consumer spending migrated from off-line to online during the pandemic, with more volume and across greater categories. On the other hand, the express delivery industry responded quickly to provide the logistics support with an ample capacity reserve. Since resuming operations in late February, observing a positive trend of growth, we took comprehensive measures surrounding our core strategy of accelerating parcel volume growth, seizing our competitive lead and further expanding our market share through coordinating efforts of central office and the provincial headquarters. First, when we set our volume goals for the upcoming three quarters, we distributed targets to each level of responsible units. We reinstituted incentive policy catered to differentiated market conditions such as pickup versus delivery and the customer makeup and mobilizing entire network to respond to competition…

Thank you, Chairman. Thank you, Sophie. Hello to everyone on the call. As I go through our financial results, please note that unless specifically noted, all numbers quoted are in RMB and percentage changes refers to year-over-year comparisons. Detailed analysis of our financial performance, unit economics and cash flow are posted on our website, and I'll highlight some of the key points here. Although adversely affected by global pandemic, COVID-19 outbreak, our parcel volumes still grew 4.9%, reaching 2.4 billion, and our market share expanded 0.3 points to 18.9%. Total revenues decreased 14.4% to CNY3.92 billion. For our core express delivery business, ASP decline of CNY0.37 or 19.4% for the quarter was at a similar level of the industry peers. It consisted approximately CNY0.32 of volume incentives, representing added support to our network partners to maintain competitiveness and to cope with the pandemic impact. Gross profit decreased 35.3% to CNY819 million, and gross profit margin decreased 6.6 points to 20.9%. This was a combined result of unit price decline, as previously noted, better-than-expected cost productivity gains and, of course, increase in volume. Unit transportation costs declined CNY0.15 to CNY0.55, primarily due to ETC waivers since mid-February and a decrease in diesel price. Increased number of self-owned, higher-capacity trailer trucks and better resource planning, as the Chairman mentioned earlier, contributed to the cost decline. Unit sorting costs increased CNY0.02 to CNY0.41 because fixed costs were with limited volume leverage as COVID-19 forced temporary shutdowns of our sorting operations until gradually reopening in mid- to late February. SG&A, as a whole, decreased 0.4%. Excluding share-based compensation cost, personnel costs decreased 5.8%. Income from operations, excluding SBC, decreased 39.1%, and associated margin rate declined 6.6 points, which is consistent with the gross margin decline. Operating cash flow was CNY177.8 million for the quarter…

[Operator Instructions]. Your first question comes from Baoying Zhai from Citi.

So my first question is to Mr. Lai. Given such strong rebound of e-commerce growth in China which lead to very strong growth of express delivery volume as well, maybe we don't need actual pricing competition strategies anymore. We can still achieve very good volume growth. Will this change our previous competition strategy? And my second question is to Ms. Yan. It's mainly regarding on the guidance. The volume guidance is actually quite good. But in terms of the full year non-GAAP profit guidance, it seems a little bit conservative given the high end is at 10% year-over-year growth. Previously, we've seen 10% year-on-year non-GAAP growth could be a base case. What'd the considerations behind? Is it because of the ASP pressure or we see totally charged, heightened expectations by two months?

First, let me translate for the Chairman, and then I'll answer your second question. The first part is, yes, we have observed a healthy recovery in the marketplace since the recovery in the second quarter. The price competition has appeared to be intensified as we look at the ground performances. I think the growth is there for volume, but it's not easily had simply because of the increase in the total net volume. We do have a responsibility and also an intention to first secure our existing volume and then, secondly, focusing on our core strategy to gain more incremental value, which will include gaining volume from other players and other peers. But our focus still is on all 3 aspects of our business improvement: volume, quality of services and productivity. Price is, indeed, to be closely watched throughout the rest of the year. And hence, that leads me to the second question, the answer to the second question. As we further focus on quality of services, especially since the pandemic, we realized that our customer loyalty comes from not only existing ways of delivering products and services, but also, it's important for us to differentiate, to come up with differentiated product to further aggregate the volume in the marketplace to build our vertical capabilities. So the guidance for the volume is reasonably based on the overall economic outlook, including those statistics published by the central post bureau. But we are also looking at a gap to fill for the first quarter. And in order to reclaim the whole year, we did put forth a reasonably achievable and also sound earnings guideline. And second aspect to the second question is, as the Chairman mentioned, the first quarter is behind us, and we've noticed the market competition is intensifying. So with that uncertainty in place, we want to be able to leave room for us to respond quickly. Again, our focus is to accelerate our market share growth and expand the lead distance to further accelerate our market share increase. Volume is of the utmost importance to us amongst all 3 focused initiatives or goals. So leading sufficient confidence for our operational people as well as making sure we are able to deliver on our promise, we've set the outlook as such.

Your next question comes from Xin Yang from CICC.

So actually, ZTO has established absolute position in the conveyor system. But from second half of last year, we can see that Shentong has entered this market and also there's other new entrants like YTO and Jingdong [ph]. So what do you think about the current situation?

Thank you, Yang Xin, for your questions. The Chairman says China express delivery market or China's delivery logistics market as a whole requires many players in order to properly serve. We, ZTO, will continue to focus on our own capabilities and competitive advantages. We are building our infrastructure, we are focusing on improving our quality of services. And ultimately, whichever the business form or whoever enters this place to compete, a value proposition to the consumers, to our customers is the key. We are focusing on the lowest cost, the highest efficiency and the best quality of services. And that's what we are going to continue to do going forward.

Your next question comes from Fan Tso from Bank of America.

I have two questions. First, on the cost side. Just wanted to ask about the room for further unit cost reduction in the future given we do see room for ZTO to continue to use automation and optimize trucks to continue to reduce unit cost, so just wondering if there's still room for further reduction. And second question is about the year-on-year growth of volume for ZTO's business in April and the first half of May.

Thank you for your question. The Chairman says ZTO always focuses on cost control, and we will continue to find room, and we do see a room for productivity gain going forward for a longer period of time. If you have noticed, we've made some changes during the first quarter. We have increased - significantly increased self-owned vehicle purchase and put them into use to balance the volume between output and input region and, as noted earlier, consolidating resources and access load to acquire additional volume. Of course, cost productivity gain is largely reliant on volume and volume increase because of scale leverage. And what we've seen is that, as volume increase, our cost on a per kilo basis continued to decrease. Secondly, automation is another aspect where we could gain more productivity. As in the previous couple of years, we have installed a lot of the small parcel sorting equipment, and we are now shifting to integrated larger package automation machines to be installed in our new opening sorting centers. Our goal is to achieve those sorting centers to be less reliant on people or a people-less operation. In some of our new openings this year, we'll see that becoming a reality. Second question, in April and May, the increase in the e-commerce, the trend is very positive, up 23% and then 32% increase year-over-year. What we saw in May is also potentially going to be a faster growth than the previous couple of months. ZTO, consequently, would also achieve and follow such trend, if not exceeding it. Thank you for your question.

Your next question comes from Thomas Chong from Jefferies.

I'm asking on behalf of Thomas. We saw that our daily volume in the first half of May reached record high with over 50 million parcels. Can you please comment about the trend, about joining different shopping festivals going on?

Thank you for your question. Our outlook for the second quarter or even the third quarter is optimistic. The whole industry is set to reclaim the whole year's growth target as the postal bureau government have anticipated or estimated the full year's target of 18%. And that target has not changed. ZTO, with its sufficient capacity, we are confident to participate in all these online promotional events and face significant increase in the volume. Our optimum or best efficient volume level currently is set to be 60 million to 65 million per day. With that, we are confident to take opportunities from these increases and particularly the promotional period in the second quarter as well as the third or even the next 3 quarters of the year.

Your next question comes from Nikki Gee from Privest [ph].

My question is about the last-mile station. In the market, there has been a lot of discussion on the - on [indiscernible] would management comment on the current progress of our last-mile dropout stations?

Thank you for your question. At the last part of 2018, we started to focus more on developing our last-mile capabilities. First, from the total volume currently, 40% of our volume of packages are being delivered through "nonperson-to-person on the doorstep" delivery. So it is through last-mile posts or the pickup boxes. Out of our total 40%, they're about 6% - or 5% to 6% that is being delivered or picked up through those pickup boxes. This form of last-mile services is necessary in order to cope with increasing costs as well as increasing volume because as an average delivery personnel, the amount of packages, the number of packages that could be delivered is limited. Unless you increase the number of people, there is no other way to serve the surging volume increases. On the last-mile, additional note is that since last year - or last part of 2018, we have collaborated with Cainiao and built over 8,700 or so of the posts under the Cainiao's brand. And then in addition, we also built close to 28,000 of ZTO-operated post locations. All of these are important, as we mentioned earlier, for us to position ourselves to cope with increasing costs as well as making connection to ultimately the last-mile consumers. As far as the fee structure produced or presented by Hive Box, we think this is a way of finding balance between the consumers, between the businesses who are out to make a profit, ultimately, of course. And also, we are watching. Currently, our posts or our Hive Box that are not collecting any fees. In the future, there will be a balance reached between the consumers and the businesses as well as the last-mile delivery personnel.

[Operator Instructions]. There are no further questions at this time. I'll now hand back to the speakers for closing remarks.

Thank you, everyone, on the call. The first quarter is behind us. As we said that we are set to achieve greater goals going forward for the next 3 quarters. The business outlook is positive, and we're preparing ourselves and our preparedness is intact, is there. Our focus is on volume increase and market share - accelerated market share gain as well as protecting the quality of services and earnings capabilities. So we look forward to have further discussions with you. And thank you again for joining today's call.