Thank you for standing by, and welcome to the ZTO Express Fourth Quarter and Fiscal Year 2022 Financial Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Ms. Sophie Li, Director of Capital Markets. Thank you, Sophie. 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; Ms. Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights. Then I will go through the financials and guidance. We 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. 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 Committee. 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, I translate for him in English.

Hello, everyone. Thank you for participating in today's conference call. For the fourth quarter of 2022, ZTO delivered a total volume of 6.59 billion, which increased 3.9% year-over-year, extending our market share by 1.5 points. Our public satisfaction ranking continued to be among the top of the industry with steady improvement. Meanwhile, we achieved an adjusted net income of CNY2.12 billion, which increased to 21% over the fourth quarter of last year. In 2022, affected by the recurring pandemic, overall growth of express industry decelerated. Facing by challenges, ZTO focus internally and further solidified our industry-leading position with increased market share, improved service quality and profitability. In 2022, our parcel volume reached drove 24.39 billion, which expanded our market share by 1.5 points to 22.1%. At the same time, our adjusted net income grew 37.6% year-over-year to CNY6.81 billion. Our strong performances came from concerted efforts by everyone under the ZTO brand, including network partners and the carriers. Start with a clear set of strategic goals we implemented specific work priorities as following: Firstly, we strengthened and the standardized operational safety controls and removed or rectified potential safety hazards. During the pandemic period, we made best effort to ensure uninterrupted package flow of consumer necessities without compromising prevention efforts. Second, through the effective control quality and coordination of all 4 stages of pickup, quotation, transportation and delivery activity. We are able to improve our service quality and the public satisfaction, which in turn enhance the ZTO's brand recognition and the reputation. Third, we've raised the level of fairness and transparency of network policy, particularly with regards to KA customer operations by assessing the volume breakdown and the profitability in a couple of KA customers. We systematically eliminated and restored market competitiveness as well as earnings for partner . Fourth, with…

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 performances, unit economics and cash flow are posted on our website, and I'll go through some of the highlights here. We achieved volume targets by growing parcel volume 9.4% to 24.39 billion for the year, with firm implementation of our consistent strategies. Our leading market share expanded further by 1.5 points to 22.1%, while we maintained superior quality of services. The adjusted net income increased 37.6% to CNY6.8 billion for the year. Total revenue increased 7.1% to CNY9.9 billion for fourth quarter and 16.3% to CNY35.4 billion for the year. Annual ASP for the core Express delivery business increased 4.7% and 8.1% for Q4 and full year, respectively as industry pricing became more and more stabilized. Total cost of revenue was CNY7.1 billion and CNY26.3 billion, respectively, for Q4 and 2022 which increased 1.9% for Q4 and 10.6% for the year. Unit cost of revenue for the core Express delivery business decreased 0.7% for Q4 and increased 2.4% for the year. Unit transportation costs declined 2.5% for Q4 and 0.7% for the year, primarily due to increased use of self-owned high-capacity trailer trucks and improved low rate, absorbing the negative impact from increase in diesel fuel price. Unit sorting costs was flat for Q4 and increased by 5.8% for the year because of a higher level of automation and improved economics, economies of scale offsetting partially increased labor costs and higher depreciation and amortization cost for automated sorting equipment and facilities placed in service. Gross profit increased 23.2% for Q4 and 37.2% for the year as a…

[Operator Instructions]. Your first question comes from Tian Hou of TH Capital.

Okay. The guidance for 2023 in terms of volume growth is actually pretty impressive. So I would like to know more about the drivers, the prospective growth. How much would come from traditional e-commerce? And how much will come from the newer players like [indiscernible]? And how much you will from other -- other merchants. That is the number -- that is the question, the first part. The second part would be, is that possible to share the trend for the unit price -- unit economics. So that is the first question.

Thank you for your question. First, regarding the guidance. The post-pandemic entire industry we have as we enter into the first quarter, observed the rebound. And as the indication given by the government key conferences, they expect the entire industry's revenue would grow 7%. And as we look at the numbers for the first quarter and relative to last year, we anticipate a reasonable level of growth, about around 10% for the industry in terms of volume. And ZTO's goal is to continue to expand our market share steadily by at least 1.5 points. We set our goals to increase our volume by 18% to 22%. And hence, relative to our prior experience in our prior track record, we believe this is achievable. And regarding the source or the makeup of the revenue certainly, we won't be able to communicate specific numbers because it really relates to all the other platforms they wish for us to maintain these numbers within ourselves -- by ourselves. But what I wanted to add is that we, as an open platform, we do serve all the up and coming and increasing, in addition to the traditional e-commerce players, for example, the [indiscernible] right? And so we, as the largest player with the biggest capacity and the level of quality of services, we typically command the highest portion of all their volume. So going into 2022 or '23, we believe the growth is still there, and we want to achieve the largest portion of that increment. The second part relates to the cost of our transportation operations. We have implemented digitization projects initiatives so that we have greater visibility in how our operations is being conducted and how we can improve the efficiency. Specifically, load rates, utilization of our vehicles as well as the route planning. So with all these, we believe that the transportation cost trend will continue to be trending down.

Your next question comes from Qianlei Fan from Morgan Stanley.

So let me translate my first question. So this is about the outlook of unit profitability of this year. So last year, we have seen a very like slow growth for the industry, but the company still achieved a remarkable earnings growth and strong dividend payout. Just want to understand what's the better growth outlook for the industry this year. Was the unit cost down, thanks to higher utilization and lower fuel and also considering the digitalization tools will continue to help the company manage its pricing and cost. Is it fair to say we can continue to expect that the unit profit can still increase from last year's level.

So let me translate and hopefully supplement to Chairman's response. ZTO is a company that has been consistently setting its strategy and also sound performing with sound execution. You are aware that we focus on quality. We focus on market share growth as well as profitability. And all 3 by our track record, has been improving throughout the years. digitization in last year has presented us with some favorable results, and we anticipate these benefits will even further being demonstrated in 2023. One of the key things in addition to what you just mentioned and what we communicated in the comments that we expressed earlier, the initiative relating to how we are better connecting between our sorting hubs, our outlets as well as to the last-mile delivery personnel, the allocation of responsibility and also share of the benefit has becoming 1 of our key focus especially coming into 2003. This will impact not only on the top line in terms of gaining more market share, bringing more volume as well as the efficiency all across as the integrated process would generate greater cost efficiency. And so these are what we anticipate going into 2023 and the goal we set for our business to achieve unit profit increases.

So I'll translate. So the second question is about the CapEx guidance for 2023. And considering that Ms. Yan just mentioned, free cash flow will continue to increase this year. Is there any consideration of increasing your dividend payout ratio going forward?

Thank you for your question. Regarding the CapEx. For 2022, it was CNY7.2 billion. And if you look at our prior years, it's around CNY9.3 billion, CNY9.2 billion. As we indicated before, we have gone into the tail end of our investment cycle. Now going into the next investment cycle is more placement for our comprehensive logistics services capabilities, including larger tracts of land for the comprehensive logistics park, construction and development. But that will take time as we first observe what the development of the market and the economy is and in the second time, the development of our eco businesses would also be a very steady and stable and systematic approach, not a onetime spending . So this will -- this sets our goal for CapEx spending is at the level of current or if not lower. So with the continued strong cash performances, we believe our free cash flow will increase. And after taking into consideration what the business needs in terms of reinvestment, any excess, we believe it's rightfully so to give back to our shareholders. So we do anticipate a high probability of us increasing our dividend payout in the future. And secondly, if I might add, as we communicate to most of our investors that we are in the process of obtaining the 5% favorable dividend tax rate so that RMB could have a much efficient tax structure coming out of China as a way of dividend. And with that in place, hopefully, in a year or 2, we are then able to further increase the payback and return to our shareholders.

[Operator Instructions]. Your next question comes from Parash Jain from HSBC.

If I may ask 2 questions, please. First of all, can you help us understand your kind of balance sheet that you want to pursue? You have a very steady cash flow over the years. And now with the CapEx rolling over free cash flow rising, you have been running a net cash balance sheet in the past few years. Is that the new normal? Or you think that with the cash flow predictability, you want to leverage moderately, if not aggressively your balance sheet and return the excess cash to the shareholder in the form of dividend or buyback. And secondly, on business going into 2023, and I appreciate that you've given a guidance. But any color you can share on how has been the start of the year, both in terms of getting into Chinese New Year and coming out of Chinese New Year and on price competition.

Thank you for your question. It's all in English so I obtained permission from the Chairman to answer you directly. For the balance sheet, yes we -- looking our past the business has been very conservative in terms of borrowing and lending -- of borrowing -- in terms of borrowing. So our balance sheet is very deleveraged. We don't have much leverage. And now going into the next few years where -- when we are -- when our cash flow -- free cash flow becomes even greater than as I answered to the previous question, we intend to buy back or return dividend to our shareholders. So indeed, that is our intention, and we do have a high level of confidence that will be achieved. So with your second question, the 2023, any color. When we went into the year, especially after the Chinese New Year, we including the open up of the pandemic restrictions we did see a rebound in the Chinese economy, albeit slow but very steady especially during the recent shopping gala as it related to the one of the national holidays or national celebrated holidays March 8, we saw 1/3 in the e-commerce packages. Typically, we have a business level of 75 million to 80 million, we saw that went up to 85 million to 90 million packages a day for our business. So we do think there is a strong buildup. Now either it being onetime or consistent and continue we are still observing and wait to see. But given the signal, given the policy that's coming from the central government, we believe the economy will be on a steady recovery. And as logistics business, as we said, it leads all the other industry in terms of benefiting or being the benefactor of the economic development. So we do believe the outcome for this year for our goal to set as 18% to 22% above, way above what the current industry anticipated average growth demonstrates our confidence in addition to our assessment of our own capabilities. As far as price [indiscernible] mentioned that the pricing we have observed in 2022 starting actually in the second half, very apparently that the corporates are going for bottom line or paying more attention to profit as opposed to using price to obtain market share. And this has been the case as we're going into 2023. We have made some adjustments specifically for smaller parcels. For that, we have not seen any market reactions that would go towards price competition. So we do believe we have got to a turning point where the long-term market price was steadily being stable and then rising. I hope that answers your question.

That indeed. And if I can squeeze just 1 very quick question, if I may. Can you remind us the rationale of raising the convertible bond despite the strong balance sheet that, as you already alluded to? And is there any defined plan of how do you want to utilize that?

Yes, certainly. Of course, foremost, it is the way we operate our business. U.S. dollar is something that we don't generate, right? We only generate RMB onshore because of our -- most of our businesses is RMB. And to buyback, pay dividend and then most importantly, to inject cash into our project companies that acquire land and landing rights and invest in facilities. It provides us a greater advantage in terms of pricing if we are able to inject with U.S. dollar. The local government has an attitude of welcoming foreign investment into China. So with U.S. dollar, we have that advantage in terms of pricing and cost.

Your next question comes from Ronald Keung from Goldman Sachs.

I want to ask two questions. One is about the pricing that you mentioned some price cuts this year and had pretty good effects on achieving your volume growth. So do we see any other players following on? And what -- could that be a risk of pricing deterioration through this year while volumes recover and the impact of that? Second is about -- you mentioned about the comprehensive logistics parks and part of your investments that you are putting into. So how should we see that? What will this eventually look like? Would it be nationwide with Express alongside some of your other ZTO like trucking companies and all of those? And how should we see the cooperation between the ZTO entities and the effects of this logistics park construction.

Thank you for your question. Regarding the price. So before we get there, we wanted to give you a comprehensive view of our approach to pricing policy. The goal of our corporate has always been maintaining a high level of quality of services and at the same time obtaining greater market share and after obtaining the targeted profit goal. With this, our policy certainly would be consistently in accordance with this 3-prong approach. So it is stable. It is consistent and it's sustainable. In 2023, we have made some modifications, but it is all to the benefit of a stabilized network as well as increased confidence to our newer partners. For example, Chairman mentioned that we have changed the way we set goals for our network partners and also how we allocate those market share gain targets for them. Instead of using year-over-year growth rates, we used their relative market share as of current. And then the goal we set for them to achieve in terms of market share for the year which to a great extent, helped network partners to alleviate any of their concerns. So their initiatives or their -- they are driving volume increases out of their own initiatives because they do believe that the next year, the volume setting goals will be continuously will be reasonable for them and achievable at the same time. We have also implemented new -- what we call it the reward and recommend mechanism instead of fining them for not achieving volume -- certain volume goals, we focus more on positive reinforcement for them to grow on their own initiatives, but keeping their sort of a pocket tight without being punished. So these are some of the examples we think that all driving towards a stable network, a sound policy. Now…

No further questions at this time. I will now pass back to the management team for closing remarks.

Yes. Thank you all very much for participating on today's call, and thank you for all very good quality questions. And I look forward to discussing and talking with you more as now we don't have much travel restrictions. So look forward to speak to you and perhaps seeing you in person. Thank you again.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.