Good day, and welcome to the ZTO Express Fourth Quarter and Fiscal Year 2023 Financial Results Announcement Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mrs. Sophie Li, Director of Capital Markets. Please go ahead, ma'am.

Thank you, operator. Hello, everyone, and thank you for joining us today at 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 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 statements. Further information regarding this and other risks, uncertainties and factors is included in the company's filings with the US 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.

[Interpreted] Hello, everyone. Thank you for participating in today's conference call. For the First Quarter of 2023, ZTO's customer satisfaction level continue to ramp among the industry talks. Our volume reached RMB 71 billion, which increased 32% over last year or 4.8 percentage points above industry average, and we achieved RMB 2.2 billion of adjusted net income for the quarter. In 2023, China Express Delivery industry maintained relatively strong growth momentum, yet price competition, particularly in the production regions worth of the year. We insisted on keeping the underlying pricing policies across the network consistent, while taking necessary measures in certain markets to maintain base volume. Our annual parcel volume grew 23.8% to reach RMB 32.2 billion. Core express delivery unit price declined $0.16 for the year. That was fully absorbed by cost productivity gain, thanks to digitization and process management that have been continuously lifting operational efficiencies. Together with effective corporate cost control, we raised the adjusted operating margin rate by 4.3 percentage points to 26.7% for the year. As a result, the adjusted net income for the year was RMB 9 billion, which increased 32.2% over 2022. The ZTO has been consistently focused on balance among quality of services, market share and earnings. The goal of any enterprise is to create value, and there is no absolute give or take between scale or profit. Instead, there is always relative trade-offs or balanced among competing priorities. Facing microeconomic uncertainties, mix of e-commerce structure shift and industry competitive dynamics, we focused on improving overall service quality and the differentiated service capability. We continue to eradicate on profitable volume, we direct customers to capable network partners, increased incentives to protect critical market presence. Our overall performance results were solid and particularly so in unit economics and total profit expansion. Even though…

Thank you, Chairman and thank you, Sophie. Hello, everyone, to the call. As I go through our financials, please note that unless specifically mentioned, all numbers quoted are in RMB, the percentage changes refer to year-over-year comparisons. Detailed information on our financial performances, unique economics and cash flow are posted on our website, and I will go through some of the highlights here. We achieved volume target by growing parcel volume 32% to RMB 8.7 billion for Q4 and 23.8% to RMB 30.2 billion for the year with firm execution of our consistent strategies. Our adjusted net income grew 4.4% to RMB 2.2 billion and 32.3% to RMB 9 billion for the quarter and the year, respectively, while we maintained a high quality of services and customer satisfaction. Total revenue increased 7.6% to RMB 10.6 billion for Q4 and 8.6% to RMB 38.4 billion for the year. ASP for the core express delivery businesses decreased 18.2% or RMB 0.27 for Q4 and 11.3% or RMB 0.16 for the year. During the Fourth Quarter, we did not raise price as would take place in the past, during e-commerce promotional period, given price competition and our readiness to process concentrated high volume. ASP decline was attributable to a mix shift in KA volume and increase in volume incentives and a lower average weight per parcel. Total cost of revenue was RMB 7.5 billion and RMB 26.8 billion, respectively, for Q4 in 2023, which increased 5.5% for Q4 and 1.6% for the year. Combined unit cost of sorting and transportation decreased 14.9% or RMB 0.13 for Q4 and for the year was 13.2% or RMB 0.11, benefiting largely from economies of scale. In addition, unit cost of mine haul transportation decreased 11.5% to RMB 0.46 for Q4 and decreased 4.1% to RMB 0.45…

[Operator Instructions]. And the first question will come from Ronald Keung of Goldman Sachs.

[Foreign Language] Thank you management. I have 2 questions. One is that you've shared your parcel volume growth for expectation for this year. But what is your expectation on the competition, particularly on the pricing front and whether we think what is the view on EBIT or profit possible trend this year, given that we have achieved quite a stable to slightly up possible in 2023, the intense competition? Second is on CapEx. So what is our CapEx expectation for this year? And given that the cash flows, do you see a higher dividend payout room in the medium term?

[Foreign Language]

Let me first translate for the Chairman for your first question, and then I'll answer the second part with our dividend.

In 2024, the government or the Bureau of Post have announced a 8% growth expectation. And we believe in our earlier remarks that we think at least 10% is possible. And our goal is to grow 15% to 18%. So that's clearly above the industry average. We think that from a price perspective, the competition in a longer run will subside because it is a natural process that any industry would go through. The low price market share obtained from low price is not sustainable. The express delivery industry are accelerating their differentiation with the leading companies, having clear advantage in scale, capital strength in network stability. The trend of strong getting stronger is quite clear and quite obvious as industry concentration continues to increase, leading express companies will reach market value that is much greater than what it is today. The competition will go from single express delivery capabilities to comprehensive logistic capabilities. And the DTO having the same goal in taking the leadership in the transformation from quantity only to combine with quantity and quality. We hope to develop differentiated price as well as differentiated products, including timeliness product, reverse logistics so that we can build early move advantages to really stand out with quality of services because we believe that is the key to obtaining market share in the long run. There are several transformations or changes or shifts in the industry. As I mentioned earlier, we have the quality towards quantity and quality. And we are also observing a comprehensive competitive advantages being built. Looking at the first and second month situation for 2024, we think our strategy remains the same, focusing on a balanced approach to improve our quality of services as priority. And then looking at the balance between market volume market expansion as…

Next, we have Fan Qianlei of Morgan Stanley.

[Foreign Language] Let me translate the next slide. Thank you management for taking my question. Congratulations for the new high in the annual profit since listed. And we do appreciate a lot the management efforts in terms of increasing shareholder return. I have 2 questions. The first question is related with competition. So what's management's expectation on the intent of the competition? Have we seen the worst already or not yet? We have already seen a few smaller players has been competing less aggressively in this year compared with last year. Do you think that could be the new normal or competition could escalate a gain if industry volume softens? What's the expectation on the unit profit outlook on a year-on-year basis? And the second question is about to build delivery requirements from regulators. Have you observed any changes to operations? What's the potential impact on cost and competition dynamics?

Thank you for your question. Yes, we have observed that the competitive environment has been shifting in accordance with the economic development and particularly e-commerce development. We believe, again, the express delivery business operation and the enterprise goal is like running a marathon focusing on being the best of ourselves is most important and feasible. With strong cost advantage, better quality of services and timeliness in our services and better operating efficiencies, we will become the winner of the full rate. The concentration of the industry continues to take place. Looking at the current situation. Everybody is still seeking a market share gain. And for ZTO this year, as we have mentioned earlier, the strategy is consistent, and we are recalibrating across the 3 priorities. So for this year, we are focusing more on improving the quality of services, providing customer satisfaction with differentiated products and services and meeting individualized and customized needs. So ensuring quality improvements and attaining appropriate earnings while expanding our market presence is our strategy going forward. The unit economics, if I may add the comments, everything is laid out in front of us as we further strengthen our productivity gain and supporting our network partners to grow last mile expanding their capabilities, we are able to attain our goal of continued profit expansion. On your second question, yes, indeed, there are new rules that are being issued. And we believe that the emphasis is continuing on improving customer satisfaction and logistic experiences, which is consistent with what we've always been working on. And particularly so as we establish near 110,000 last mile post, it is indeed to help not only our network partners to improve their quality of earnings, but most importantly is to help improve last-mile service quality to door delivery capability, meeting the demand individualized as well as customized. So in the longer run, this is a good thing for the industry as we are shifting towards more of quality of services. So we will continue our efforts going forward in this arena.

Next, we have [indiscernible] of Haitong Securities.

[Foreign Language] First of all, congratulations to company for achieving good performance in the fourth quarter and throughout the year. Since the beginning of this year, we have observed strong growth among our peer companies. I'd like to know the areas in which the company is undergoing transformation or an adjustment. It's our nonpoint strategy still impact, considering the market environment, are we planning to adopt a more aggressive pricing strategy to gain business volume? Thank you.

Indeed, a very clear answer to your question is our long-term strategy, our consistent strategy remains the same. And I think our fourth quarter results as well as our plan for 2024 clearly indicates that our strong belief, first of all, that price attained low-price attaining market share is not sustainable. And it is important, again, as the leadership role, taking a leadership role in the industry to grow from quantity to quality as well in combination with quantity going forward is our goal. And so we believe that the price competition in combination with the earlier question asked by [indiscernible], is that, yes, indeed, there are indications or expressions by many of the industry players that they will also follow the trend, follow the transformation to go from quantity only to more quality. And we believe this is a process that will be taking place for the near term. And the overall goal of our business remain to keep our network partners an interest amongst all the players, including our network partners allocation being equitable and market share is important, but it's not the only thing, profitable growth is what we aim to achieve going forward.

Next with Aaron Luo of UBS.

[Foreign Language] Let me translate myself first. And as Mr. Lai and Mrs. Yan has mentioned earlier, we also noted that we have a long-term focus on improving our service quality, product mix and pushing for further product differentiation. Could you please shed more light on like what kind of initiatives we will take for this year? And what are those advantages we have compared to peers? And the last question would be, do we have any like quantitative goals on this front? Thank you so much.

Thank you very much for your question. The overall strategy, we have mentioned earlier that we will continue to focus on our own. And at the headquarter level, we first have put forth the quality of services in the front and managing the relationship between profit and market share. At the sortation centers level, we are focusing on better allocation or more efficient allocation and resources to meet the varying interest of sortation center outlets as well as our network couriers. For ourselves, we will further our efforts and initiatives to improve the transit efficiency and capability. For example, as we mentioned earlier, reduced the total process time increase the quality by reducing losses and delay and fully utilize our resources. To the outlets, we think that many initiatives are there to, first of all, improve the clear allocation of roles and responsibilities between the sortation center, the outlet and the couriers so that they each individually for every of their work segments will improve quality as well as efficiencies. For our couriers, we distinctly laid out policies and laid out initiatives to improve linkage as well as ensuring that they are able to, as courier motivated or incentivized to attain more non-e-commerce and retail shares by allowing them to gain the lion's share of the marketing price so that they are working for themselves instead of nondifferentiated compensated with no differentiation from pickup or delivery fee. With that, we are clearly on an overall standpoint, having objectives for the last mile to achieve 3 areas of go. One is to reduce overall cost and then 2, distinctly improve service to door on-demand services to meet the customized individual demand and also improve connectivity with our customers so that couriers are able to gain access to more retail volume and retail packages. And then thirdly, at the appropriate location in time, we want to introduce commercial opportunities to our last mile post, so that they are also improving the quality of their earnings. On an overall basis, we have set our volume growth for the business to be 15% to 18% for the year. And certainly, our retail volume or noneconomic volumes growth goal is significantly higher than this 15% to 18%, so that we hope to pull away from the senseless price competition and become truly differentiated from the Tongda Group. And with longer term and improved service quality and brand distinction. I hope that answers your question. So I think we are at line 30. So thank you very much, everybody, for joining today's call. We welcome further discussions and the elaboration of our intention, which is very clear in the current environment of how we grow our business, how we develop our brand and improving our shareholder returns. Thank you again for joining us today.

And we thank you to the rest of the management team for your time also today. The conference call has now concluded. Thank you again for attending today's presentation. At this time, you may disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]