Good day. And welcome to the ZTO to announce Third Quarter Financial Results on November 17, 2021, Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Sophie Li, Director of Capital Markets. 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 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 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 in current market and operating operations, 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 the entirety in Chinese before I translate for him in English. Meisong, please.

[Foreign Language]

Thank you, Chairman. Now please allow me to translate first. Hello, everyone, and thank you for joining us today. In the third quarter of 2021, ZTO completed 5.7 billion parcels and grew volume 23.3% to secure 20.8% market share. Same second quarter this year, we paid more attention to the quality of our volume growth by focusing on profitable parcels, continue to drive for cost productivity and we achieved RMB1.15 billion of net income. On a comparable apples-to-apples basis, our net income increased 13.7% year-over-year. Steady and fast development of the express delivery industry has relied on the long-term guidance and support by relevant government agencies. Market driven healthy competition has benefited from continuous regulatory attention, particularly low price approach not only disrupts market order, but also hinders sustainable growth, adjusted macro steering provided assurance to a sustained growth and development of the industry. In orderly competitive environment, ZTO put more emphasis on profitability, while maintaining quality of services, increasing market share and maintaining smooth operation throughout the network. Looking at the industry dynamics, second and third tier express delivery companies have all been exited and top group are dividing with clearer distinctions, competition has been putting off and returning to stability and it is hopeful that industry pricing will gradually stabilize by 2022. At the same time, we have observed deceleration in the growth of e-commerce. The thesis in front of ZTO is how we can maintain our industry lead and grow and particularly achieves the transformation from quantity to quality. Our consistent strategy is to maintain high quality of customer services and achieve targeted profits, while expanding our market share at different stages of our business development. Our emphasized and execution must be coherent to achieve intended balance among the three priorities, our capacity and infrastructure development, because…

Thank you, Chairman. Thank you, Sophie, and 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 analysis of our financial performance, unit economics and cash flow are posted on our website and I will go through some of the key highlights here. In the third quarter, ZTO achieved profitable volume growth. We grew parcel volume by 23.3% to RMB5.7 billion, secured a leading market share at 20.8% and widened our profit lead with RMB1.15 billion adjusted net income. Normalized for the onetime 2019 income tax refund received in 2020 for a wholly-owned subsidiary, adjusted net income increased 13.7% on a comparable basis. Total revenue increased 11.3% to RMB7.4 billion. ASP for the core express delivery business declined 7.2% or RMB0.09, which consisted of approximately RMB0.05 decrease due to normal parcel weight drop and RMB0.04 related to normal volume incentive. Average weight per person declined 5.8% to approximately 0.98 kilo. The cost of revenue was RMB5.8 billion, which increased 10.9%, a much lower rate against 23.3% volume growth. Overall unit cost of revenue for the core express delivery business decreased 7.3% or RMB0.07. More specifically, line-haul transportation costs per parcel decreased 5.9% to RMB0.50 and unit sorting costs decreased 2% to RMB0.29. Gross profit increased 12.7% to RMB1.6 billion, as a combined result of increased volume, decreased ASP, partially offset by unit cost efficiencies. Gross profit margin rate increased 0.2 points to 21.2%. SG&A increased 4.2% to RMB389 million, driven by increase in compensation and benefits, and office expenditures. SG&A expense as a percentage of revenue dropped 0.3 points to 5.3%. Net other operating income mainly consisted of tax rebates, government subsidies, included a RMB20 million this quarter for charitable donation made to Zhengzhou Red Cross to aid the recovery from heavy flooding in Henan Province. Income from operations increased 16.4% to RMB1.4 billion associated margin rate increased 0.8 points to 18.4%. Operating cash flow grew 20.7% to RMB1.8 billion, as capital expenditure totaled RMB2.6 billion. As we go into the final stages of our current investment cycle, the level of capital spending is expected to level off and begin to decrease. As Chairman Lai explained earlier, that we intend to recalibrate our strategy priorities to achieve quality growth, we expect net income growth will exceed meaningfully over revenue growth. Accordingly, driving stronger cash generation and enable us to resume cash flow position within two years. Now turning to our guidance, based on current market conditions, the company revises its annual guidance. Parcel volume for 2021 is expected to be in the range of RMB22.2 billion to RMB22.7 billion, representing a 30.6% to 33.5% increase. These new estimates represent company’s current view, which are subject to change. This concludes our prepared remarks. Operator, please open the line for questions. Thank you.

[Operator Instructions] Our first question will come from Thomas Chong with Jefferies. Please go ahead.

[Foreign Language] I will translate the questions. Thanks management for taking my questions. I have a question regarding the competitive landscape after we have been seeing J&T and Best M&A deal. Given that the combined company would be big going forward, I just want to get a sense about would there be any change in terms of our strategies with the new payer or I would put it this way on the combined bigger company challenge our position and my [Foreign Language] My second question is about the earlier management comments with regard to earnings growth to be faster than revenue growth. I just want to get a sense about how this would be translated into ASP cost per parcel, as well as the volume trend over the next couple of years? Any qualitative color would be great. Thank you.

Yeah. [Foreign Language]

Yeah, Chairman. And I will first translate and I will supplement answers. First of all, as you clearly pointed out, the market dynamics is becoming much clearer to us. Very specifically, the top players are gaining more on not only volume concentration, but also profitability. And then secondly, the entrants or the likelihood of new entrants similar to J&T is unlikely. The fact that the two combined together, this is the Part A supplement that the J&T and Best combination. Now, first of all, theoretically, the integration will present some challenges, and then two, we don’t believe this is a clear one plus one greater or equal to type of scenario. These two businesses are very different from the rest, profitability-wise, infrastructure-wise. So we think for them to successfully complete their integration. It will take some time. It will take patience from capital. And at the same time, the rest of the top players will continue to leverage on their own strength, and perhaps, even taking advantage of some of the fall out of the volume that may be not able to consumed or absorbed by the integration. In the meantime, the entire market is also going to grow, even though we did observe slowdown in the e-commerce development. In terms of the second part of question, very specifically we talked about the earnings growth will be expanding much faster than the revenue growth. Now talking about ASP that you specifically asked, this quarter, our ASP decline is driven by the normal development of the market or of the packages. And also, if I may explain a little bit more on the normal volume incentives. This policy has been in place for many years where you -- every year incremental volume will receive a small incentive. So as we grow our businesses, there will be some volume driven ASP impact. Now, with that said, as we grow our volume even faster and as our market competition start to becoming more sensible, price will start to stabilize in starting as early as next year. We believe ASP increases will come soon. Cost per parcel, we have been gaining on cost efficiencies. Going forward, we also are going to develop what we mentioned the tri-layer integrated throughput will fundamentally change our operational cost structure and deliver much greater cost efficiencies. That is with -- with these understandings, we presented our confidence that the earnings growth will be at a much faster pace than that revenue growth. For 2021 we expected our overall adjusted net income to grow no less than 30% compared to last year and for next year the growth will also being no less or even slightly higher than this year’s net income growth. Hope that answers your question.

Sophie, thank you.

Our next question will come from Jangchens Lu [ph] with CICC. Please go ahead.

[Foreign Language] So let me translate for myself. Thank you management for taking my question. I have two questions. First is about CapEx guidance, as you mentioned just now, for the next year, we might see CapEx will be top or start to decrease and I want to know about the exact guidance about CapEx next year? And the second one is about VAT super deduction. How do we expect that to forecast for next year? Thank you.

[Foreign Language]

Thank you for your question. First of all, the capital spending, our spending is largely towards acquisition of land use rights, about 70% of those are land use rights in facility constructions, about 15% relates to our transportation capabilities, large vehicles or replacement of those and then the rest will be for other infrastructure including technology and so on, so forth. And this structure has been the case, has remained as such for the past few years. Now the larger portion of the investment that goes towards land, use rights and also facility construction are not just for our express core businesses, we are intending to utilize and maximize the utilization of these facilities for our ecosystem development, including, for example, LTL business, cloud warehouse business, as well as coaching business that just came online. Capital spending for this year is around total RMB9 billion and we think next year will be no more than RMB9 billion, and perhaps, even reducing in that total. Second question, the VAT super deduction, as it expires, we think that this -- by the end of this year, the super deduction policy will go away and that’s the end of that positive impact.

Okay. Thank you.

Thank you. You are welcome.

Our next question will come from Ellie Jiang with Macquarie. Please go ahead.

[Foreign Language] Let me translate myself. Thanks management for taking my question. As we see ASP continues to climb back, possibly for the industry. How do we think about the overall industry pricing trends in 2022? And the second question is the potential impact into our fourth quarter operations with regards for the recent electricity shortage and COVID impact? Thank you.

If you look into the structure of the ASP, you notice that some of the peers included the delivery fee in their ASP. So on a apples-to-apples comparison basis, ZTO ASP in that regard also increased, and then for next year, we think that we will be in sync with the market. As we talked about earlier, the total price competition has becoming more and more sensible and it’s specifically for what we call entitlement delivery fee of RMB0.10 that was pretty widely implemented by the industry. So the ASP increase is mainly driven by that. So, on a comparative basis, if we included the delivery fee, our ASP would also increase accordingly. Your second question relates to the electrical shortage or as well as some of the impact on the regional outbreak of COVID. We have a significantly large network and also at the meantime we have very specific on the ground team working diligently on addressing some of the risks and issues that brought about by the COVID. So far there hasn’t been any significant issues and we with the strength of large network impact here and there are minimal without causing systematic issues. Hope that answers your question. Thank you.

Thank you very much.

Our next question will come from Yan Che [ph] with UBS. Please go ahead.

[Foreign Language] So my question is requesting poll just to confirm the fourth quarter earnings guidance is no less than 30% year-on-year year growth and how about next year?

Thank you for your question. Yes. It’s based on our current view. Yes, we are already very much into this quarter. We expect our earnings growth for this quarter to be no less than 30%. And this is a trend that has been slowly establishing since the second quarter, when we refocused our business priorities to achieve greater quality growth, driving out not profitable volume, which going after the profitable ones. So next year consistent with our strategy this year, the earnings growth will be no less than the revenue growth and we think at 32%, 35%, is a safe bet.

[Foreign Language]

Our next question will come from Yan Xiang [ph] with TH Capital. Please go ahead.

Hi, management. Thanks for taking my questions. My question is mainly about your market share. And firstly, can you comment about the overall performance during the Double 11 Shopping Festival. We know the consumption may be a little weak this year, while the demand also tends to be more diverse to different platforms. So can you -- can we assume those are the positive impacts for ZTO to capture the market share? The second one is about your -- about the competition in market share, with now J&T is buying back China express delivery business, can you call me about the impact of the acquisition, will it change the whole competitive landscape in China express industry? Let me translate myself. [Foreign Language]

[Foreign Language]

Let me translate for Chairman. The W11 that we just experienced, some of the figures from November 1st to the 14th accumulative for order reached RMB1.22 billion. Accumulated volume was RMB1.19 billion. And during the peak days, order volume reached RMB180 million. The daily pickup volume reached RMB130 million. The delivery volume reached RMB110 million. So across the whole globe, if you may, we are the only company that achieved all three metrics over RMB100 million. And specifically, also, the quality of services in the day on the 3rd to the 10th according to China’s Indices, we are number one knowing not only among the Tongda, but across the entire industry. These figures represented or is evident to the fact that we have significant advantages in terms of infrastructure, operational excellence, network stability, capability, as well as our financial strength. So with that, if I may lead into the question that you asked about the joint or the M&A activity that took place. Before J&T entered into the marketplace, we have a plan of growing our market share consistently to reach a 25% goal in the next two years to three years. With J&T coming in and particularly its business model, i.e., low cost and low price driven in loss making, it did disturb our pace in achieving consistent market share gain. And also with the attention and interference or intervention, I should say, positively speaking, from the government official to address the frontline operator’s interests in protection of their rights, we have shifted our execution level of strategy to focus more on profitable volume and that is why we didn’t let go at the price. We didn’t go after loss making volume and then at the same time wasn’t able to obtain that 6 point to 7 point that was gotten by J&T due to its low price approach. So normalized wise, we are not -- normalized wise going forward, we believe the quality focused growth will allow us to again rely on our significantly better competitive advantage in gaining the share that is coming through organic and inorganic growth. One point to make is that we are able to see the consolidation that is taking place in the market dynamics. Going forward, the stronger, i.e., capacity wise, capability wise and the financial strength wise, those larger ones and leader will continue to pull away from the rest. And we are expecting the number of players to gradually reduce as the bigger ones get bigger and get stronger and more profitable. I hope that answers your question.

Yeah. Very clear. Thank you.

Thank you.

Our next question will come from Peter Chen with Green Court Capital. Please go ahead.

[Foreign Language]

[Foreign Language]

First of all, the question is -- go ahead. So the question first of all for those that are English speaking on the line, the question regards to our ecosystem, really he is asking the core business is developing quite well and what’s happening in the ecosystem arena, what are our second growth trajectory, where do they come from? So the Chairman has mentioned that the growth plan of our ecosystem has been in line in place. Since 2015 we recognize that the future competition of the businesses or the industry will be on a comprehensive level, comprehensive meaning, not just the express delivery business, which currently is largely dependent on ecommerce packages. So since 2015 we started to grow out of the current core businesses, the international business, the LTL business, the less than truckload, i.e., and the cloud warehouse business, which provides in-house -- in warehouse processing, as well as integrated delivery services. These are natural extensions of our core businesses, because as we invest, utilizing capital invest in our infrastructure. We begin to shift from solely invest for express business to investment for comprehensive logistic capabilities and hence currently we have all these nine altogether ecosystems, separate segments developing at different stages, all are able to utilize the resources either it’s hard physical resources or assets, as well as customers, market products and services. And as we build our comprehensive smart logistic parts, we are seeing that the product and services goods are aggregating and redistributed at a much more efficient way, because we are closer to each other, the facilities are able to serve on a more responsive basis, and the utilization of our resource and investment or in some cases multiple uses and also at the same time driving synergies across business segments is the way that we go about developing our ecosystem. As we said earlier, they are developing at different stages based on the needs of our customers and becoming more problem, solution -- problem solving and solutioning. Going forward, we will have one-by-one these businesses coming online and contributing greater share of our total economics in the next five years to 10 years.

[Foreign Language]

Thank you.

Our next question will come from Tian Hou with TH Capital. Please go ahead.

[Foreign Language] In the last more than 20 years, the express industry grew together with China’s e-commerce. However, actually today’s stage, the high growth from e-commerce is just over. So if we are looking for the new additions and the new growth drivers for the express industry, we must looking for somewhere else. So particularly like, say, ZTO deliver growth to a community grocery shopping or in the overseas services. For the overseas services we also notice the supply chain issue across the border. So I think I would like to hear management make some comment, so for this year what are the new growth drivers in addition to e-commerce will be next year. What will be the focus of the ZTO in 2022 if this is down eventually?

[Foreign Language]

Let me translate. The growth indeed for the e-commerce business in China has on a rate basis slowed down. It indeed has the past 50% to 60% annual growth is a thing of the past, but still it has already established a huge base. So going forward, it will be a stable growth, but not 40%, 50%. With that said, together with the new up and coming format of commerce in China, we think the total express delivery industry this year, of course, we think that it’s very likely to go over RMB100 billion or you can reach RMB110 billion volume. In the next few years at a medium to high speed of growth, it will likely to reach total RMB200 billion and it’s very likely the case. So that means express delivery business itself still has plenty of room to grow. The key factors that we need to consider about express business is, first of all, scale. Scale leverage is determined by its distribution or by its density at RMB60 million to RMB70 million package per day, ZTO certainly is one of the top performer. And second factors to consider is its wide coverage. So what you mentioned going overseas and expanding our business horizon including the air transports and all that, is all part of our comprehensive logistic capability development plan. The government is also promoting the two entrance and then one exit, right? So this relates to going deeper into the rural, going deeper into the country, going into the factories and then going outward is to international. So as we on one hand building our capabilities, developing our infrastructure, we are going to follow when the right time comes, the businesses that are going overseas. Currently, we already have businesses expanding into Southeast Asia countries, as well as African countries in terms of resource planning, as well as collaboration with some of the already local players. Going forward, this network of operations will continue to expand. So hence we are able to achieve and reach our mission to become the world leading comprehensive logistics service provider. Tian?

Thank you. It’s really clear. Thank you, Meisong.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Yan, CFO for any closing remarks.

Thank you, everyone, for joining us today. We are looking forward to share with you some of our renewed thoughts about how we go about the next stage of our business development. And once again, thank you for your long-term support and trust in ZTO. We will speak to you soon.

Okay. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.