Good day, and welcome to the ZTO Express to announce Second Quarter and Half Year 2024 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Sophie Li, Corporate Secretary and Director of Capital Markets. Please go ahead.

Thank you, Betzy. 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 and current market and operating conditions and relate to investments 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.

[Foreign Language]

[Interpreted] Let me translate for Chairman first. Hello, everyone. Thank you for attending today's conference call. In the second quarter of 2024, ZTO maintained industry-leading service quality management, and with our parcel volume growth at 10% year-over-year that reached RMB 8.45 billion. We achieved adjusted net income of RMB 2.81 billion, which increased 11% over last year, demonstrating continued strong profitability. In the second quarter, despite macroeconomic softness, driven by booming development of e-commerce promotions, online consumption maintains relatively high growth. Parcel volume of China's express delivery industry increased 21.3%, exceeding expectations. However, the proportion of low-priced e-commerce parcels continue to trend up and price competition further intensified, while prioritizing service quality. ZTO continued to [ 6,000 ] among service quality to process and the scale to drive sustainable and healthy development of the entire network. During the second quarter, upon further elimination of unprofitable volumes, our market share contracted by 2 percentage points compared to the same period last year. At the beginning of this year, across all 3 of our major metrics, we put greater expertise and quality while maintaining a scale advantage towards level and appropriate level of profit. We directed attention and resources towards upgrading customer mix, refining differentiated products and services and incoming brand awareness and customer satisfaction. Our last-mile development, we implemented these initiatives to explore opportunities to reduce last month delivery costs and improve the profitability for all-list and careers. In the second quarter, ZTO's end-to-end delivery time ranked top among Tongda peers and the customer complaint rate continued to decrease. Meanwhile, with the improved response time and on-demand service capability, the ratio of retail parcels was further extended. As the optimization of revenue structure partially alleviated unit price pressure, driven by price competition, our ASP was flat. Combined with the cost efficiency…

Thank you, Chairman Lai and 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 the financial changes refer to the year-over-year comparisons. Detailed financial performances, unit economics and cash flow information are posted on our website, and I'll only go through some of the highlights here. In the second quarter, we adhered to the principle of profitable growth and achieved a 10.9% increase in adjusted net income to reach RMB 2.8 billion, while continuing to improve the quality of services and brand value. Our parcel volume grew 10.1% to $8.45 billion. We continue to fine-tune resource allocation to achieve optimal balance between volume and profit in the second quarter. ASP for our core express delivery business stayed flat at RMB 1.24 as the impact of decline in the average weight per parcel, an increase in incremental volume incentives were offset by the positive impact of the volume increase in non-e-commerce parcels. Our total revenue increased 10.1% to $10.7 billion. The cost of revenue was RMB 7.1 billion, which increased 10.4%. Overall unit cost for the core express delivery business increased 0.7% or RMB 0.01. Specifically, line haul transportation costs per parcel decreased 6.8% to RMB 0.39, driven by improvements in fleet operations with better resource utilization. Unit sorting costs increased 4.6% to RMB 0.26 due to increased D&A cost on new equipment and facilities. Unit KA costs decreased RMB 0.04 -- or increased RMB 0.04 in line with KA revenue increase. Gross profit increased 9.6% to RMB 3.6 billion, and gross profit margin rate decreased 0.1 points to 33.8%. Consistent with gross profit, income from operations increased 11.7% to RMB 3.2 billion and associated margin rate grew 0.4 points to 30%. SG&A expenses,…

[Operator Instructions] The first question today comes from Ronald Keung with Goldman Sachs.

[Foreign Language] First is about our parcel volume of 10% and slower than the industry. So as we talked about in the announcement as well, volume is not an important as it brings scale leverage. So I want to hear your guidance to be implied second half. Should we -- will we expect some fine-tuning of our strategy to maximize the scale, parcel volume and profitability? And second is for the unit profit, we see mostly stable. That implies the underlying unit cost actually has been quite stable as well. Is there further room to improve on operating efficiencies? Or have we maxed out all of the efficiencies that were done in the past? What further could we do to improve the operating leverage of the business?

[Foreign Language]

[Interpreted] Thank you, Ron, for your questions. So let me translate for the Chairman. First question, indeed, the parcel volume for the total industry has grown, and it exceeded our expectations. In the second half of the year, we do have the following plan. Our market share decreased 2%, the main reason being that, first, there are a lot more price competition or price competition intensified. There are a lot more ineffective, or we call it, ineffective indeed, it is just below the cost, it's priced below the cost. So the overall proportion of nonprofitable volume has increased. So what we do is we very effectively controlled such volume coming into our network because we adhered to our strategy that's set out in the beginning of the year to focus more on quality of services, and with that, to achieve appropriate level of profit, and in turn, market share. If we look at it in an overall perspective, our capacity and the volume are in tune. They are reasonably matched. In the first half of the year, the results that we achieved is out of the range of our 15% to 18% guidance for the whole year, which means that in the second half of the year, we should at least to achieve 18% of growth in order to come into the range of our previous guidance. And based on the current conditions and current view of our businesses, we have a high confidence of achieving such target. So more from a theoretical perspective, if we want more volume, we can simply reduce the price. But we didn't choose to do that, again, because we wanted to focus on profitable growth while achieving reasonable match between the capacity and our market share volume gain. We should be able to achieve healthy growth on both. Second half of the year, again, we will continue to focus on improving quality of services, developing differentiated products to achieve a reasonable level of profit and volume balance. Second part of the question, indeed, for the entire industry through all these years of fine-tuning of operations and investment of automation and so on and so forth, the unit cost productivity gain has been declining. For us, however, in the first half of the year, we exceeded our goal for cost productivity gain for the year. We have invested for over 26 super sorting centers. There are reserves, ample reserves for capacity release in the future. We do believe that the capacity installed, as well as its flexibility in meeting as up to 50% of volume demand, we are still well on track to consistently and gradually release meaningful cost efficiency going forward. Then for the unit profitability, based on the overall capacity as well as the reserve, we think that the strategy being consistently carried out, there will be stability in our profit growth on a total level as well as unit level.

The next question comes from Qianlei Fan with Morgan Stanley.

[Foreign Language] Let me translate to myself. Congratulations on the very resilient profit growth in the same quarter. I have 2 questions. The first question is about the retail process. In announcement, company mentioned that we are on track to double our retail parcel volume. And would you please remind us our current daily retail parcel volume, the percentage in operating volume in our total volume, our target for this year and probably the target to achieve for the next few years? The second question is about cost reduction. We understand that the competition of express delivery business is not only about cost reduction at the line-haul, but also about cost reduction at the home network, especially at your network partners and last-mile. So would you help us to better understand our initiatives to help the network and last-mile to reduce cost and potential cost-saving room in the next few years?

[Foreign Language]

[Interpreted] Thank you very much for your question. Currently, our daily volume of non-ecommerce parcels exceeded 5.4 million, and our year-end goal is to achieve daily volume average 6 million packages. You know that in last year we started off with daily volume about 4 million packages, and we are on track to achieve our goal to double that volume because the peak volume would most likely exceed 7 million parcels per day. And this is our goal and we are confident to achieve that. How do we achieve that? And Chairman went into the details, so give me some time, I will go through the specifics with you. First of all, it's related to increasing the ratio, is what we referred to in our remarks, of non-e-commerce packages as a ratio to our delivery total. So in other words, if I deliver 100 packages and there needs to be at least 6 packages pick up as non-e-commerce. So one other thing. There are 4 specific strategies that we implemented to improve the portion of non e-commerce or what we call it, individual parcels or retail parcels. One is to enhance consumers' willingness to send parcels at our post through deliberate marketing effort and the promotions in using of digital tools. So the handheld, building your own focused group or targeted group is something that are being implemented. Number two, training our couriers to improve their awareness of serving customers in the customer loyalty. So more personalized, more higher-quality standards issued to our couriers so that they are able to be recognized having the capability of serving to-door as well as pickup from the consumers -- from the customers. Number three, shifting quality management of the delivery services, focus from post-event to pre-event, so thereby reducing the customer complaints or…

The next question comes from [ Lu Jiang with Haitong ].

[Foreign Language] First of all, congratulations to company for achieving good performance in the second quarter. My question is about the capital expenditure plan for the years 2024 and '25 and the longer period. I'd like to know which area of the investments were allocated to and how we make the capital expenditures flat? Second question is about the cost reduction place about the whole process in the future.

[Foreign Language]

[Interpreted] Thank you very much for your question. Well, the first question is about the CapEx. In the past, we have been consistently investing in CapEx, mainly to build sortation centers and established transit capabilities. So today, most of our super sorting centers were self-owned and above 90% to be specific, if I may supplement. So going forward, we won't be in need of expanding our CapEx spending. Based on the economic development, some areas or weaker areas, we have also reserved base 200 to 300-hectare acres, for example. If our volume demand increases onefold or even twofold, we have sufficient reserves already there. So we don't need to spend capital to acquire further more significant land use rights. We just need to either develop them or upgrade them. The consideration, however, do need to be given to our initiatives in the longer term, they have a lot being comprehensive logistic capabilities, for example, warehousing or in-warehouse processing, LTL businesses or those ecosystem businesses do rent spaces from us so that they are able to form a comprehensive and higher-efficient -- efficiently co-located product and services by utilizing our capacity. Going forward, it is very clear that acquisition for land use rights, building supercenters are going to be very minimal. The growth of our -- or putting in line of services, putting services, the capacity is very much directed or matched with our anticipated demand of capacity in this sortation, transportation and all the segments of our operations. We are able to foresee with a very clear visibility, and going forward, we will be able to generate increasing free cash flow, where we talked about giving back return to our shareholders. It's based on the fact that the cash generation will continue to be healthy, and the CapEx spending will…

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

Thanks again for your continued attention and support. Our strategy shift in the beginning of the year has been very effective for us, specifically in improving the non-e-commerce packages. It's reflected in our bottom line. Balanced approach will continue to be our future focus, including the last-mile initiatives. We believe we are building long-term competitive advantages so that we are differentiated from the rest of Tongda. We look forward to speaking with you in the future, and thanks again for joining today's call.

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