Good day, and welcome to ZTO Express to announce Third Quarter 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. 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 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 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 update any forward-looking statement 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, Chairman. Please let me translate first. [Interpreted] Hello, everyone. Thank you all for joining today's conference call. In the third quarter of 2024, ZTO continued to maintain its leading service quality amongst peers. Our total parcel volume reached 8.72 billion, representing a 15.9% year-over-year growth. Meanwhile, we achieved adjusted net profit of CNY 2.39 billion, and our profitability remains ahead of our comparable peers. ZTO adheres to high-quality development, and we set a strategic direction at the beginning of the year to accelerate establishment of differentiation in products and services while enhancing brand awareness and recognition. In this quarter, ZTO further strengthened the standardization and streamline across our operational segments. Our end-to-end timeliness ranked #1 among Tongdas players, and the customer complaint rates continue to decline. We are winning the trust of e-commerce platforms and consumers. Our partnerships with various e-commerce platforms have deepened, particularly in reverse logistics services and remote area express delivery services. As a result, our retail parcels grew over 40% year-over-year. The optimization of our revenue structure has effectively alleviated pressure due to price competition. Combined with strong and sustained cost efficiency and a stable SG&A expense structure, we further widened our lead in per parcel operating profit. China's express delivery industry experienced a 20.1% year-over-year increase in the third quarter. There is an expanding proportion of low-price e-commerce parcels, and the price sensitivity fueled by weak economy contributed to the recent trend of mix shift. We believe that higher quality focused growth of the express delivery industry depends largely on the certainty and the sustainability of the macroeconomic recovery and growth. The current new economic dynamics presented the challenging question of how to balance across our core values. That is quality of services, scale, operating profit and interest of franchisee partners. Maintaining and…

Thank you, Chairman 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 percentage changes refer to year-over-year comparisons. Detailed information on our financial performances, unit economics and cash flow are posted on our website, and I will just go through some of the highlights here. In the third quarter, we adhered to the principle of profitable growth and achieved a 15.9% growth in parcel volume to reach 8.7 billion while continuing to improve the quality of services and brand value. Our adjusted net income increased 2% to CNY 2.4 billion. ASP for the core express delivery business increased 1.8% or CNY 0.03 as the impact of decline in the average weight per parcel and increase in incremental volume incentives were offset by the positive impact of the volume increases in retail parcels. Our total revenue increased 17.6% to CNY 10.7 billion. Total cost of revenue was CNY 7.3 billion, which increased 15.2%. Overall, unit cost for the core express delivery business remained flat at CNY 0.82. Specifically, unit cost of line-haul transportation decreased 9.7% to CNY 0.39, driven by better economies of scale, improvements in fleet operation with better resource utilization. Unit sorting costs decreased 6.4% to CNY 0.25, mainly attributable to improved standardization in operating procedures and increased automation. Key KA costs increased CNY 0.06, which is in line with KA revenue increases. Gross profit increased 23.2% to CNY 3.3 billion, and gross profit margin rate increased 1.4 points to 31.2%. Income from operations increased 17.3% to CNY 2.8 billion, and associated margin remained relatively stable at 26.6%. SG&A expenses, excluding SBC as a percentage of revenue, increased 0.2 points to 5%. Corporate cost efficiencies remained intact. Income tax expenses were…

[Operator Instructions] The first question today comes from Qianlei Fan from Morgan Stanley.

[Foreign Language] Let me translate for myself. I have 2 questions. The first question is about the capacity plan for the next year. We -- if we continue to see a relatively low-quality volume growth to go -- to continue into next year, specifically similar to what we have seen in the second half of this year, what will be our, like, CapEx or capacity growth plan for next year? Will it continue to be like mid-teens growth? Or we will likely slow down the volume -- the capacity growth expectation and focus on the relatively high end of the market? The second question is about our share buybacks. Do we have any further updates or like clearer plan on the execution of our share repurchase plan? Is it still reasonable to assume that we are able to complete all the announced share buybacks by the end -- by the mid of next year when the plans -- the end of the execution plan mentioned last time?

[Foreign Language]

Thank you, Chairman, and I will translate for the first question and then I will answer the second question. [Interpreted] The overall plan for 2025 is that we will still be focusing on the corporate strategy of balancing approach -- a balanced approach to all 3: quality of services, volume market share and also our profit. The priority is shifting. And also, we are focusing on regaining the volume growth momentum, and it's based on a reasonable level of profit as we continuously improve the quality of services. There are many specific tasks at hand. So again, the goal is to expand our market share leadership, maintaining reasonable level of profit as we improve -- consistently improve our quality of services. The goal is for our policy to be more relevant and designed around the customer needs and to the market. It needs to be also maintaining its transparency and fairness. The policies are going to be simplified as opposed to too complex, and so that it's easier to be understood and address very different needs of our customers. The flexibility would also be allowed given the autonomous decision-making ability that we will provide to our regional managers. The overall intention of this initiative is to improve the trust and confidence of our network partners. The second point is to continue to improve the design of our last-mile operation. We've talked about the policy of incentivizing our network couriers to respond more towards the retail parcels. The machinery that are being installed at our post would allow us to improve the proportion of our packages that goes directly from our outlet to the post, alleviating work pressure of our couriers, and hence, helping them work towards improvement of the retail package as a proportion of their total delivery volume, ultimately…

The next question comes from Ronald Keung with Goldman Sachs.

[Foreign Language] First question is on -- we've seen a stable profit per parcel in the third quarter, while volumes came slightly below industry growth. So given the full year guidance, does that imply 4Q parcel volumes will be slower? Is that a view on the industry? Or are we focusing more on profitability than market share in this 4Q peak season? Second is on our reverse logistics strategy with e-commerce return parcels. What's our strategy there? The typical collection is a lot more frequent for these reverse logistics. So how are we adjusting our network for that and our strategy in gaining share in reverse logistics?

[Foreign Language]

[Interpreted] For the first question, first of all, thank you very much for your question. The guidance is based on our overall approach to balance between all 3 corporate strategies. And the increase in low volume or low-priced volume in the quarter persisted. So in the fourth quarter, we maintained our prior practice in policymaking. We didn't make drastic changes. Particularly for those large customer or large clients that might have concentrated our volume, we didn't make special incentive policies for them because we are trying to continue to maintain a level of balance across our network. There are price increases either from the government's suggestions in Yiwu area, or individually, there are price movements directed by different market players. The -- again, the large changes weren't present for this fourth quarter. We were mainly focusing on working in our internal management understanding of how we would approach next year. As I mentioned earlier, the work is cut out for us to balance across sorting center outlets as well as our couriers. So we wanted to make a better planning in order to achieve volume increases as well as achieving reasonable level of profit. So for the fourth quarter parcel volume, it's not necessarily slower in the market, but it is the fact that we have maintained our prior approach to pricing, but being ready and preparing for the next year. Your second question as far as how we are able to address the increased perhaps frequency of customer needs in order to improve the retail volume if I understand you correctly. So the thinking behind what we are trying to do to increase the retail volume is very much so driven by our intention to improve the courier as well as the outlets profitability. The specific tasks we have…

The next question comes from [ Lori Zhang ] with [ IDOL Securities ].

[Foreign Language] The first one is since Taobao started cooperating with JDL, what impacts this might have on ZTO? The second question is about the outlook for the other operating income items in the next quarter.

[Foreign Language]

[Interpreted] So let me translate for the first question and I'll answer the second one. The mutual opening of e-commerce and logistics platforms marks a healthy shift towards a more open and collaborative market environment. Platforms will also choose more cost-effective logistics services based on the principle of fair market competition, which helps reduce operational costs and improve efficiency. This is not only -- this not only provides merchants with more diverse logistic options, but also offers consumers better delivery service experiences. So we think that this doesn't have a significant impact on our business because we are indeed ourselves an open platform that addresses all service needs from different e-commerce platforms. And now the second question relating to the other operating income. Largely, there is a change because the super VAT deduction is -- the policy has expired. And also, for that part of the operating income line, there are less certainty as it relates to -- for the items that are related to external policies, we are not able to make control. So what we have expected, the fluctuation, excluding those new items, will be minimal. And going into the next quarters and next year, it will still be stable. Does that answer your question?

[Foreign Language]

The next question comes from [ Sun Yan ] with Western Securities.

[Foreign Language] Please allow me to translate my question. The first question is about the KA customer revenue. We observed that the KA customer revenue has achieved an incredible growth. We want to know what's the reason behind the high growth? And what's the gross margin of this business? And what's the net margin contribution to our future business? This is the first one. And the second one is about the cloud warehousing. We observed that the -- our logistic parks developed quite quickly. And we want to know the future development plan of our logistics parks?

[Foreign Language]

[Interpreted] First of all, some statistics. In third quarter, the volume of KA businesses was 300 million and accounting for approximately 3.5% of our total parcel volume. KA revenue was approximately RMB 1.3 billion, a year-on-year increase of 120%. KA revenue per parcel was RMB 4.3, year-on-year increased about 31%, mainly due to an increase in the proportion of platform reversal -- reverse logistic customers with higher prices. In the third quarter, platform reverse logistics parcels handled by ZTO is approximately 112 million, a quarter-on-quarter growth of 25%. The unit revenue was RMB 6.5, quarter-to-quarter contributing about CNY 1.5 per parcel to head-of-quarters profit. The main clients come from various e-commerce platforms, as we mentioned earlier, as ZTO continued to improve its quality of services, reduce losses, reduce customer complaints. The platforms are choosing more and more so based on its efficiency and effectiveness formulation so that as we improve our services with the same price, we are able to win more platforms volume. And with the same quality of services, our price has more advantage built in. So as we focus on improving our own capability, we are expecting to continue to increase the retail volume, which, again, will help our network partners as well as our couriers to improve their quality of earnings. And in turn, as they improve their revenue and income, the entire core business will be supported as well going forward. Now going to -- on the infrastructure installed base. As we have about 95% of our sortation centers, most of them located in the centralized area, either for logistics or for businesses, the capacity to serve our entire ecosystem is more advantaged because we are able to share resources, have synergies in utilizing the same investment and produce continuous and repeated output. There are many locations where we have storage and sortation and ship out all co-located, which is what we have introduced before. It's called zero distance ship out or shipment, which, not only reduces the cost, but also improves the timeliness because we are able to take order all the way to 10:00 -- 10:00 P.M. and have that order shipped out during the same day. Our strategy in developing the total ecosystem to have more comprehensive logistics service capability is in line with our total mission to become the leader in the comprehensive logistics industry. So we will continue to improve, continue to implement this co-locating model and driving greater synergy across the entire logistics services arena. Thank you for your question.

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

Thank you again for everyone to join today's call. I think it's worth mentioning that we are refocusing our resource and allocations. Our goal is to achieve great balance and a healthy balance of profit and burden sharing across the center in the quarter network partners and also our couriers. We've been doing well in the past in fair allocation and equitable allocation of cost and income and profit among all constituents of our businesses. Going into 2025, our goal is to regain our volume growth momentum in order to resume the expansion of our volume leadership. And at the same time, we are putting in place effective initiatives so that we will maintain our operating profitability as well as helping our network partners to improve their efficiency in managing their businesses and improving their profitability so that our network will continue to be healthy and sustainable for the future growth of the entire industry and in line with the recovery of the economy of China. Thank you again for your time, and we look forward to discuss with you in greater detail.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]