This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
Operator
Good day and welcome to the ZTO to announce third quarter financial results on November 17th, 2021 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Sophie Lee, Director of Capital Markets. Please go ahead.
Sophie Lee
Thank you, Operator. Hello, everyone, and thank you for joining us today. The company's results in the investor relations presentation were released earlier today and are available on the company's IR website at ir.dto.com. On the call today from ZTO are Mr. Mason Lai, Chairman and the Chief Executive Officer, and Ms. Clayton Yen, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Ms. Yen, who will go through the financials and the 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 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 balance 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. Mason Lai. Mr. Lai will read through his prepared remarks in their entirety in Chinese before I translate for him in English.
Mason Lai
Our market share remains at 20.8%. Since the second quarter of this year, China has been paying more attention and focusing on effective fast-tracking while ensuring service quality and customer satisfaction. At the same time, we have strengthened the mechanism to improve economic efficiency. In the third quarter, we achieved a net profit of $1.5 billion. In the same context, net profit increased by 13.7% in the same period last year. The high-speed and stable development of the express delivery industry is inseparable from the guidance, assistance, and support of the governments and the people. The competitive attitude of the good industry continues to pay attention, care, and guide the regulatory departments. The price that is not limited will inevitably disrupt the market trend of reasonable competition. It brings obstacles to the sustainability development of the industry. The direct guidance and control of the Red Cross is an effective guarantee that the industry will continue to develop stably. In the ongoing industry competition, the CPC pays more attention to guaranteeing profitability and increasing market share at the same time under a stable quality. From the perspective of industry policy, The second and third-tier courier companies have basically withdrawn, and the division of the capital industry is becoming more and more obvious. The industry competition is gradually returning to normal, and the courier price is expected to be stable in 2022. At the same time, we have observed that the share price of the e-commerce market has plummeted. The subject matter in front of us is how to maintain the lead in the new market and policy environment, continue to grow, and realize the change from high quantity to high quality. Tungtung's strategy is still to increase the market segment under the premise of ensuring a high quality service level and achieving a fixed profit target. In different stages of business development, we have managed to balance and control the balance between the three centers, and we have decided on our management priorities and guidelines. In terms of production capacity and network construction, because the essence of express delivery is the drive of production capacity and efficiency, we will continue to increase the investment of production-based facilities, improve the ability to convert, transport, and distribute in four areas, and welcome a larger business volume. At the same time, we will also support non-combatant and system network partners to help the endpoints, strengthen the ability to build, reduce distribution speed, and improve operation efficiency. We will definitely achieve the three goals, starting from the starting point to the end point center, starting from the starting point to the end point center. We will speed up the development of Modan, and open and integrate multi-channel, multi-layered local living scenarios. At the same time as reducing the cost of Modan express delivery, we will increase and widen the link between consumers and customers. In terms of profit and business production, we will use reasonable cost and resources to measure and calculate the fair price, increase the profit and loss of the end point, To strengthen the confidence of the players. At the same time, we will focus on not only the formation and rich individualization needs, but also to strengthen the expansion of service and product diversification, increase investment, improve capability, and accelerate the development and promotion of fast-growing, cold chain, cloud storage, etc. ecological blocks. Surround the customer's needs and pain points. provide comprehensive, multi-layered, individualized, and customized services to improve consumers' awareness and awareness of Chinese brands. In terms of operation and management, we use scientific information as a support to improve operation efficiency by not only improving the digitalization and crystalization level, but also using precise data to improve the decision-making and efficiency of each part of the operation. We will pay attention to the improvement of talent base construction and comprehensive management capabilities. Core management and execution teams will move towards youth and technology drive. Network management will be more in-depth. We will support the stable development of the network from multiple dimensions. At the same time as the complete reduction of wealth, multi-dimensional wealth can help the complete improvement, simplify the regulation of supervision, increase the positive influence, and maintain the network policy. supply and transparency. Increase the sense of belonging, happiness, and sense of achievement of the end-users and businessmen. Challenge the desire to play with water. In the future, the express business will continue to grow at a medium and high speed. The potential for industry development is still great. We will develop in the express industry for a long time, full of confidence and expectation. Do your own thing well, do it firmly, and do it right. We believe Thank you, Chairman. Now please allow me to translate first.
Sophie Lee
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. In the second quarter this year, we paid more attention to the quality of our volume growth by focusing on profitable parcels, hunting you to drive for cost productivity. and we achieved 1.15 billion of net income. On a comparable Apple to Apple 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. Vertically low price approach not only disrupts market order, but also hinders sustainable growth. Constructive micro-steering provided assurance to a sustained growth and development of the industry. In an orderly competitive environment, ZTO put more emphasis on profitability while maintaining quality of services, increasing market share, and maintaining smooth operations throughout the network. Looking at the industry dynamics, second and third tier express delivery companies have all but exited, and the top group are dividing with clearer distinctions. Computation has been putting off and returning to sensibility, 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 achieve 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 emphasize and execution must be coherent to achieve intended balance among the three priorities. On capacity and infrastructure development, because the nature of express delivery business is scale and efficiency driven, we will continue to expand our capacity investments so as to improve capability across all four stages of parcel flow, meaning increase the volume demands. In the meantime, we will support and collaborate with our network partners to develop their capabilities, reduce number of sortations, improve efficiency, and achieve integrated three-layer throughput, that is direct hustle flow between origination and destination sorting centers or outlets. We shall accelerate the development of our last mile post network, expand and penetrate into a wider range of localized commercial opportunities so as to improve connectivity with consumers and customers, all the while reducing last-mile costs. Profitability and business development. Adhering to proper cost coverage and effective resource allocation, we will design our network policy with precision, transparency, and fairness so as to increase network partners' earnings, hence promote trust and confidence. Meanwhile, we will pay attention to the involving needs of our customers and expand our products and services with resource-supported fulfillment guarantees. We will speed up the development of ecosystem businesses such as LDL, coaching, cloud warehouse to provide comprehensive, customized, or individualized solutions to our client's needs, including grant value and the recognition. On operations and network management, we will rely on information technology to improve operational efficiency. Digitization and data analytics will ensure efficiency improvements throughout the entire process. We will pay close attention to team building and develop comprehensive Our core teams of managers and operators are becoming younger and technology savvy. We will deepen our management reach for the network, including the system delivery end. We will support stability and development of our network partner by providing support from varied aspects, including simplified regulations and a shift towards positive enforcement versus heavy funds. Our policies will be fair and transparent, which will help instill sense of belonging and achievement. Challenges and opportunities go hand in hand. Express delivery business will continue to grow at a medium to high speed, which presents tremendous potential. We remain confident on the long-term growth prospects of this industry. Being the best of ourselves, execute diligently and well, We believe we can significantly extend our corporate earnings while attaining greater volume and higher market share by relying on superb capacity, operational excellence, and efficient network synergies. Now, let's have Ms. Yen to take us through our financial results.
Yen
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'll 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 $5.7 billion, secured a leading market share at 20.8%, and widened our profit lead with $1.15 billion adjusted net income. Normalized for the one-time 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 $7.4 billion. ASP for the core express delivery business declined 7.2% or $0.09, which consisted of approximately $0.05 decrease due to normal parcel weight drop and $0.04 related to normal volume incentive Average weight per parcel declined 5.8% to approximately 0.98 kilo. The cost of revenue was 5.8 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 7 cents, More specifically, line haul transportation costs per parcel decreased 5.9% to $0.50, and unit sorting costs decreased 2% to $0.29. Gross profit increased 12.7% to $1.6 billion as a combined result of increased volume, decreased ASP, partially offset by unit cost efficiencies. Gross profit margin rate increased 0.02 points to 21.2%. SG&A increased 4.2% to $389 million, driven by increase in compensation and benefits and off 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 $20 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 $1.4 billion. Associated margin rate increased 0.8 points to 18.4%. Operating cash flow grew 20.7% to 1.8 billion, as capital expenditure totaled 2.6 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 revised its annual guidance. Parcel volume for 2021 is expected to be in the range of $22.2 billion to $22.7 billion, representing a 30.6% to 33.5% increase. These new estimates represent companies' current view, which are subject to change. This concludes our prepared remarks. Operator. Please open the lines for questions. Thank you.
Operator
We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. In the interest of time, please limit yourself to two questions. Also, please translate your questions and ask in both English as well as Chinese. At this time, we will pause momentarily to assemble our roster. Our first question will come from Thomas Chong with Jefferies. Please go ahead.
Thomas Chong
Hello everyone, thank you for accepting my question. I have two questions. The first question is that I would like to ask about the entire competitive structure of the industry. Because recently, I have also seen some M&As appear in the industry, such as G2 and BEST. Just now, when I was at the conference call, the management also mentioned that the response of the head will become more and more obvious. I would like to ask about 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 bigger going forward, I just want to get a sense about would there be any change in terms of our strategy with the new player, or I would put it this way, on the combined bigger company challenge position. And then my second question is, I'd like to ask some more questions. Just now, the management also mentioned that for the next few years, the growth of net income will be faster than the growth of income. I'd like to ask, in terms of this dimension, 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.
Mason Lai
Hello. First of all, I would like to answer your first question, which is the competitive pattern. That's what we're looking at. The pattern of the future will be stable. In the future, in this case, in this case, in this case, in this case, in this case, in this case, in this case, in this case, in this case, in this case, This is likely to happen in the next two or three years. It's likely to happen in the next two or three years. This is likely to happen in the next two or three years. This is likely to happen in the next two or three years. This is likely to happen in the next two or three years. This is likely to happen in the next two or three years. This is likely to happen in the next two or three years. This is likely to happen in the next two or three years. This is likely to happen in the next two or three years. This is likely to happen in the next two or three years. Thank you, Chairman.
Yen
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 entrance or the likelihood of new entrance similar to J&T is unlikely. The fact that the two combine together, this is the part I supplement, the J&T and best combination, first of all, theoretically the integration will present some challenges. And in 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 fallout of the volume that may be not able to consumed or absorbed by the integration. And 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 the 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 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 these understandings, we presented our confidence that the earnings growth will be at a much faster pace than the revenue growth for 2021 we expected our overall adjusted net income to grow no less than 30 percent compared to last last year and for next year the growth will also be no less or even slightly higher than this year's net income growth hope that answers your question
Thomas Chong
Thank you.
Operator
Our next question will come from Jiang Xinlu with CICC. Please go ahead.
Jiang Xinlu
Thank you, Guan Yicheng. Good morning, Mr. Lai and Mr. Yan. I have two small questions. The first one is, you just mentioned that next year, our profits will have a recovery, and the government spending may drop or drop. I would like to ask about the specific changes in the direction of our government spending. So let me translate for myself. Thank you, management, for taking the question. I have two questions. First is about CapEx guidance. As you mentioned just now, for the next year, we will 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?
Mason Lai
Thank you.
Yen
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 construction 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 cold chain business that just came online. Capital spending for this year is around total $9 billion, and then we think next year will be no more than $9 billion, 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're welcome.
Operator
Our next question will come from Ellie Jang with Macquarie. Please go ahead.
Ellie Jang
Let me translate myself. Thanks management for taking my questions. As we see AST continues to climb back positively 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.
Yen
If you look into the structure of the ASP, you'll notice that some of the peers included the delivery fee in their ASP. So on an apples to apples comparison basis, CTO 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 10 cents that was pretty widely implemented by the industry. So the ESP increases 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 relate 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 this 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.
Operator
Our next question will come from with UBS. Please go ahead. .
Cai Niao 's
So my question is quite simple. Just to confirm the fourth quarter earnings guidance is no less than 30% young year growth, and how about next year?
Yen
Thank you for your question. Yes, it's based on our current view. 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, but 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 30% to 35% range is a safe bet.
Operator
Our next question will come from Yair Zhang with PH Capital. Please go ahead.
Yair Zhang
Hi, Benjamin. Thanks for taking my question. My question is mainly about your market share. And firstly, can you comment about the overall performance during the W11 shopping festival? We know the consumption demand may be a little weak this year, while the demand also tends to be more diverse to different platforms. So can we assume those are the positive impacts for ZDO to capture the market share? The second one is about the competition and market share. We know J&T is buying back China Express delivery business. Can you comment about the impact of the acquisition? Will it change the whole competitive landscape in China Express industry? Let me translate myself. 谢谢管理层。 我的第一个问题是关于市场份额的。 因为4Q我们知道... Thank you.
Mason Lai
The problem with the market share is that this year, we actually had a very good performance in the middle of the year. We reached 12.2 billion orders from January 1 to 14. The business volume was almost 12 billion. The highest order during the 31st period was 1.8 billion. The highest order volume was 1.3 billion. China is the world's only courier company that has more than 100 million orders per day. And in the last 31 years, the number of customers has been the number one in the entire industry from the 3rd to the 10th. It's not just the number one. This year's market share, why didn't we raise it? Because the whole structure has changed. After it came in, it took about six or seven points of market share. So if the structure is stable, if it doesn't come in, our market share will definitely increase by one or two points. The second question is, what is the impact of joint acquisition? We think this is not good for all courier companies. There are no competitors. At the same time, the market share is getting smaller and smaller. For Zhongtong, because Zhongtong is based on Thank you.
Yen
Let me translate for Chairman. The double 11 that we just experienced, some of the figures from November 1st to the 14th, cumulative order reached 1.22 billion. Accumulated volume was 1.19 billion. And during the peak days, Order volume reached 180 million. The daily pickup volume reached 130 million. The delivery volume reached 110 million. So across the whole globe, if you may, we are the only company that achieved all three matrix over 100 million. And specifically also, the quality of services in the day on the 3rd to the 10th, according to Cai Niao's indices, we are number one, 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 25% goal in the next two to three years. With J&T coming in, and particularly its business model, i.e., low-cost, low-price-driven and loss-making, it did disturb our pace in achieving consistent market share gains. And also with the attention and interference or intervention, I should say, positively speaking, from the government official to address the frontline operators' interest 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 of the price. We didn't go after loss making volume. And then at the same time, wasn't able to obtain that six to seven points 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 and gaining the share that is coming through, 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 financial strength-wise, those larger ones and leader will continue to pull away from the rest. 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.
Cai Niao 's
Yeah, very clear. Thank you.
Yen
Thank you.
Operator
Our next question will come from Peter Chen with Green Car Capital. Please go ahead.
Peter Chen
Thank you, Manager Chen. I am Peter from Green Cross Capital. I would like to ask Mr. Lai, regarding the accounting business, we think that the turning point and the trend have become more obvious, and the Middle East has actually established a very obvious advantage. So I would like to ask Mr. Lai, from a long-term perspective, in the next three or five years, how do we start the company's, for example, the second phase of the curve, and then, for example, like the school line, and then the fast transport chain, including international business, How do you look at the development of these businesses? Do we have a priority order or a priority order for self-investment? Thank you. I'm sorry. The central bank is relatively stable.
Mason Lai
Then in the future, we believe that express delivery competition must be a comprehensive logistics competition. So we started to set up a comprehensive logistics ecosystem in 2015. At present, in addition to the express delivery main business, we have 1.9 billion units, and there are nine units below. The development is very good. We believe that the future competition for express delivery will be the competition for joint benefits and the biggest competition for resource efficiency. For example, we have a lot of land. In the past, the land we built was for express delivery. We now have express delivery, fast transport, cold chain, and warehouse. In this way, we can increase the efficiency and make better use of resources. For example, in each section, such as the meeting room, the pool, and the gas station, we can use more resources and make better use of resources. At the same time, the load capacity of our logistics will be greatly improved. For example, express delivery and express transport will be integrated, including our warehouses. Thank you.
Yen
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, it's 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 Chairman has mentioned that the growth plan of our ecosystem has been long 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 e-commerce packages. So since 2015, we started to grow out of the current core businesses, the international business, the LTL business, less than truckload, i.e., and the cloud warehouse business, which provides 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 began to shift from solely invest for express business to investment for comprehensive logistic capabilities. And hence, currently, we have all these nine altogether ecosystem 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 parks we are seeing that the product and services goods are aggregating and redistributed at a much more efficient way because we are closer. 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 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 to ten years.
Peter Chen
Thank you.
Operator
Our next question will come from Tian Hao with CH Capital. Please go ahead.
Tian Hao
I have a question. In the past few years, the business of the logistics industry and the business of the Chinese e-commerce industry have developed together. But today, we have already seen that the e-commerce industry in China has reached a stage where it will no longer have high growth, but will be more stable. From the point of view of increasing our business, it will definitely not bring new high-speed growth in the telecommunications sector. So in other businesses, such as in the community, overseas, how do we consider it? Especially overseas, I am now looking at this, because recently the international supply chain has also become a problem. There are some overseas companies that carry planes from China. In the last more than 20 years, the express industry, you know, together with China's e-commerce, However, at today's stage, the high growth from e-commerce is, you know, it's over. So if we are looking for the new additions and the new growth drivers for the express industry, we're not looking for somewhere else. So particularly, like, same CC deliver, grocery, you know, community grocery shopping or, you know, overseas shopping. For the overseas services, we also noticed the supply chain issue across the border. So, you know, I think, you know, I would like to hear Manchu make some comments. So for DTO, what are the new growth drivers, you know, in addition to e-commerce, will be next year? What will be the focus, you know, of DTO in 2020? It's just a question like that.
Mason Lai
Thank you. This is indeed the case. China's express delivery is impossible to grow at 50, 60, 60, 70 percent. Because the highest growth period has already passed. But its volume is already very large. This year, this express delivery business volume will definitely reach 100 billion. It may reach 11 billion. So let's look at the past two years. The absolute number of growth per year is the largest. Two billion, more than two billion. What about the future? I think there will be a period of time when the growth rate will be around 20 billion yuan. In the next 25 years, our net profit will be from 1,900 to 2,000 billion yuan. Although the growth rate is slow, the absolute value is still very high. I mean. The efficiency of Chinese couriers should be the best in the world. However, we have made a big breakthrough in the comprehensive logistics section. We have already introduced it in advance. In the future, it will be a global comprehensive logistics service company. It is our 9 billion courier, fast transport energy. Then there is another degree, which is the width. So the more you design, the wider it is. For example, the cross-border, the problem of sea crossing that you just mentioned. Then, our government also encourages to enter the sea often. In fact, we are also a little bit reluctant to leave the sea. For example, Southeast Asia, including Africa, it is possible that our next step is to go to the port, to be together with China's industry, to be together with other countries, including the United States, these places. Let me translate. The growth indeed for the e-commerce business in China has on a rate basis slowed down, but it indeed has
Yen
the fast 50 to 60% annual growth is a thing of the past, but still it has already established huge base. So going forward, it will be a stable growth, but not 40, 50%. With that said, together with the new and 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 100 billion or even reach 110 billion volume. In the next few years, at a medium to high speed of growth, it will likely reach total 200 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 60 to 70 million package per day, ZTO certainly is one of the top 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 working promoting the two entrance and then one exits, right? So this relates to going deeper into the rural, going deeper into the country, going into the factories. And then the 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 in the Southeast Asia countries as well as Africa 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. Yen?
Tian Hao
Thank you. It's really clear. Thank you, Yen.
Yen
Thank you.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Ms. Yen, CFO, for any closing remarks.
Yen
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'll speak to you soon.
Operator
The conference is now concluded. Thank you for attending today's presentation.
Disclaimer