Hello, and welcome to the ZTO Express Conference Call to Announce Fourth Quarter and Fiscal Year 2020 Financial Results. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Sophie Li, Director of Investor Relations; with Meisong Lai, Director and CEO; and Huiping Yan, CFO. 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 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 Ms. Yan, who will go through the financials and guidance. They will both be available to answer your questions during a 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 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 upload 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. [Foreign Language]

[Foreign Language]

Thank you, Lai Song. Now, please let me translate first. Hello, everyone, and thank you for joining us today. The year of 2020 represented another milestone in ZTO's development. We maintained our lead in overall customer satisfaction and grew annual parcel volume by 40.3% over last year to exceed RMB17 billion, expanding our number one market share to 20.4%. 2020 was also an extraordinary year. We remained true to our Shared-Success philosophy, leveraging on our extensive coverage and brand recognition, leading scale and capacity, continuously improving operational efficiency, and trusted in the collaborative network partners. We maintained top rent [ph] to service quality, while growing volume rapidly. Amid the hard blow of pandemic, frequent changes in industry dynamics and a fierce price competition. We recorded RMB4.59 billion of adjusted net profit, demonstrating a highly differentiated quality of earnings compared to our worker’s markets here. ZTO's consistent strategy to accelerate parcel volume acquisition and expand market share while balancing service quality and profitability has been proven effective. First, we focused on building transit capabilities. On one hand, we acquired relatively large tracts of land for constructing comprehensive smart logistic parks with integrated operations such as in-warehouse processing logistic fulfillment. While enhancing the level of automation and the utilization, we are designing sets that are useful for coordinated, yet varied operational flows. We have increased the proportion of self-owned fleet, including high capacity trailer trucks and improved the engine-to-trailer ratio. We also better organized the use of third-party logistics to supplement our own fleet. On the other hand, we continue to enhance the development of IT technology platforms. In addition to the dramatic of upgrades of our existing operating modules such as Zhangzhongtong, Shenzhou, Galaxy and [BBP]. We achieved the new breakthroughs in areas such as user interface, process streamlining, new product…

Thank you, Chairman. 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. Detailed analysis of our financial performances, unit economics and cash flow are posted on our website. And here, I will go through some of the key highlights. Driven by a strong consumption demand post pandemic and our sound execution of strategies, we exceeded the high end of our volume target range by growing parcel volume 40.3% to over 17 billion of parcel for the year. The 4.9 billion incremental parcels in 2020 is industry number one and is greater than the total parcel volume we achieved for the entire year of 2016. Our leading market share further expanded by 1.3 points to 20.4%. The revenue increased 20.6% to RMB8.3 billion for fourth quarter and increased 14% to RMB25.2 billion for the year. Annual ASP for the core express delivery business declined by 20.1% for Q4 and declined by 20.2% for the year, which was moderate compared with industry peers. Price decline resulted from one: volume incentives to support our network partners to grow market share, while maintaining confidence and keeping the network stable; two, increased use of lower priced single sheet digital waybills; and three, parcel weight drop of 8% to 1.05 kilo for the year or 1.06 kilo for the quarter. Total cost of revenue increased 31.9% for Q4 and increased 25.1% for the year. Unit cost of revenue for the core business decreased by 12.1% for Q4 and 11.8% for the year. Unit transportation costs declined by 15.7% for fourth quarter and declined by 17% for the year, primarily due to increased use of self-owned high capacity trailer trucks. We also benefited…

[Operator Instructions] Your first question comes from Thomas Chong from Jefferies. Please go ahead.

Thanks, management for taking my pressures and congratulations on a solid set of results. My question is about the competitive landscape in 2021. Should we expect the landscape to be more moderate compared to last year? And on that front, how should we think about the ASP as well as the cost per parcel trend in coming quarters? And my second question is about the various initiatives that we may potentially pursue, in particular, any thoughts about the delivery in a community group purchase? Thank you.

[Foreign Language]

[Foreign Language]

[Foreign Language]

Thank you for your question, and let me translate for the Chairman. As you can see that we have experienced a very price competitive dynamic year, but as we go through the process, the lower-tier players are pretty much out of the picture. And even so, the top group of - with concentrated players with scale, are also showing polarized dynamics with the bigger ones bigger and more profitable, but the smaller ones not growing and also not making money, making losses. So everyone's positioning in the market among the top-tier players are very different. We believe that the Chinese market, especially the express delivery market will continue to grow steadily and by an official estimate by the year of 2025, the total volume will near double of current level. And that would mean that scale and infrastructure construction is crucial to our sustained growth. This year, we invested RMB9.2 billion in infrastructure, and it is consistent to our longer-term initiative or strategy to build strong capacity and also capability. The Chairman also mentioned that not only we are developing our own platform, scale and operational efficiency, we are also helping our network partners through financing, through management consulting to help them develop their capability of managing their businesses and also break through some of the potential bottlenecks in their facility and capacity. Now with all these investments, while the market continue to grow, we think the dynamics would be much more clear and within a reasonable number of period of time, our leading position will likely and make it much more stable for the competitive landscape. Express delivery business rely on scale. And when you mentioned - when you ask the cost per parcel, whether - what are the trends, in the near future or as we are currently…

Thank you.

Your next question comes from Tian Hou from TH Capital. Please go ahead.

[Foreign Language] Two questions. One is from the market share point of view. I see a little bit shrinking than previous quarters. So how do we maintain our market share in 2021? What are some specific actions ZTO is going to take? That's the first one. Second is regarding the competition, it will be very hard to maintain the possibility, while we will have to deal with price competition. So what are some specific actions or strategies ZTO is going to take to balance these two very contrasted issues? That's my question. Thank you.

[Foreign Language]

Thank you, Tian for your question. Yes, we did notice the slight decline from quarter-to-quarter. And we think that the key reason is the eight to 10 points the improvement in market share by J&T, and it is - creating a dilutive impact on everybody. But we think that it's not a sustainable long-term trend. From our perspective, express delivery is still a volume and scale and an operating efficiency gain. Where we have continually invested in our infrastructure, our scale leverage has provided significant advantage to our balanced approach, in not only growing volume and expanding market share, while maintaining quality of services, but also achieving a high level of earnings. We believe our focus is on the longer-term in an infrastructure investment. This year, we are - we have achieved a historical high of RMB9.2 billion, and it will continue to increase for the next year. A stable network is the second key important factors for sustained long-term growth. The network partners, operating within a highly competitive marketplace, and they are still investing in their facilities. They are also working with us in our development of our network changes, where we are streamlining, we are de-layering. They are also working with us. And it's apparent, our network partners are much more confident in our approach and in our business to continue to lead. So our network is the most stable. And then thirdly, specifically speaking, when we issue network policies, it's also unlike any other. It's transparent, it's fair, and it is also in a highly competitive dynamic, much more in sync with the market condition. In other words, we are asking or designing our policy to be competitive compared to all the other competitors in the marketplace. We are not any better off or worse off, yet because of our operational efficiency. We are able to leave more room for our network partners. The longer-term growth of Chinese express delivery industry for the near-term is when we - as we see, around 15% to 20% growth annually, and ZTO's goal is to achieve 10 percentage points higher than the industry growth. With that pace, we believe, in 2021, our volume growth will lead us to achieve 22% at least of the market share. And we're still on our way to achieve a higher market share, and our goal set for 2022 is around 25%.

Thank you. Your next question comes from Ronald Keung from Goldman Sachs. Please go ahead.

[Foreign Language] We have seen the unit cost in 2020, where there was a big decline in costs, particularly there was toll fee exemptions in the second quarter, VAT rebate, social insurance exceptions. And so as we look into 2021, with these cost pushes, do we expect players to pass-through these costs and will - our ASP declines actually be less in this year versus 2020? And then my second question would be, we talked about logistics parks and kind of combining express LTL, co-chain warehouse and with a more comprehensive solution for our customers. I see that LTL is actually an associate that we own on a high teens stake. So - we have plans to increase our stake there, what's the plan for the LTL business? Thank you.

[Foreign Language]

Okay. Let me answer the first part of the question. The fourth quarter ASP decline is still largely related to the market competitive environment. We have seen that in the fourth quarter, given we've given our much more incentives for our network partners. For the full - for the fourth quarter, it's $0.25 - a decrease of a total of $0.36 and the decrease for - related to the network incentives was $0.25. And so, the cost side of the equation, certainly we've mentioned, we did experience policy benefit in the first quarter of this year, because of the toll road waiver and also there are some benefits from the oil price declines. But that is still compared to our own operational cost efficiency gains. We believe the cost competitiveness would continue to be hard [ph] going forward, aside from any of the policies or benefits in the marketplace. So going forward, we think ASP the trend is still very much related to the market condition. When we did say that the competition has been going on for a while, and each of the players' profitability and also their ability to grow, which largely dependent on how and where their network partners are investing. If not investing then, the end-to-end competitiveness will not be and - continue to be intact. So, the clear leaders are those who are able to maintain stable network, invest in the infrastructure and have strong infrastructure as well as further cost and scale efficiency gains. And for the second part of the question, the LTL business and all our other ecosystem developments are in a way very much organically in-sync. So, we developed our LTL business and then our cloud warehouse business. And today, we've decided that it's time for us to invest more in smart logistic operational parks, because of their inter-synergies that are being able to carry out by all our businesses. LTL business being one of the earlier exercises or earlier trials of our approach to a new adjacent business, and it's been doing quite well. It's been among the top five now with a very short period of time, only three or four number of years, it's attained its market position. And we think that, it will lead our approach of a synergistic development of our ecosystem businesses.

Thank you. [Foreign Language]

Thank you. That does conclude our time for questions. I'll now hand the conference back over for closing remarks.

Thank you, operator. In closing, on behalf of the entire ZTO management team, we would like to thank you for your interest and participation in today's call. If you require any further information or have any interest in visiting us in China, please let us know. Thank you for joining us today.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.