ZTO Express (Cayman) Inc.

Good day and welcome to the CTO Express to announce first quarter 2025 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please seek conference specialists by pressing the star key followed by 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 questions, please press stars and two. Please note this event is being recorded. I would now like to turn the conference over to Sophie Lee, Head of Capital Markets. 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.dq.com. On the call today from CTO are Mr. Mason Lai, Chairman and the Chief Executive Officer, and Mrs. Yen, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Mrs. Yen, 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 Probations 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 filings with the US 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. Mason Lai. Mr. Lai will read through his prepared remarks in their entirety in Chinese before I translate for him in English.

大家好,感谢各位参加今天的电话会议。 2025年一制度,中通继续保持行业领先的服务质量水平,业务量达成85.4亿件。 . . . . . The ratio of low-end and high-end e-commerce companies is further expanding. Express price competition is still very strong. Faced with the pressure of increase in volume and reclamation, the central government, with the focus on service quality and business volume, has widened the penetration of low-end companies under the pretext of unreasonable price competition. On the one hand, we continue to strengthen the standardization and consistency of medium-term operations. continue to improve the full chain efficiency and reduce unit costs, and quickly consolidate the brand's advantages. This is the basis for improving the operation efficiency. On the other hand, we focus on improving the continuity of the overall policy framework, maintaining the stability of the home network, and further strengthening the construction of the end-to-end delivery capability. to create a long-term competitive advantage. What we are concerned about is the results of the company in the construction of differentiated products and service efficiency. First of all, ZTE continues to upgrade the service quality and reach the range, which has earned the trust of e-commerce platforms and professional customers for deeper cooperation. In the first quarter, the retail business volume achieved a quick growth of 46% in the same year. Among them, the image-saving business volume increased by more than 150% in the same year. The impact of the Chinese brand on customers and customers continues to improve. The optimization of the product structure brings a 1.2% increase in the income per ticket of core business. 12. Through the efficient assessment mechanism of digitalization operation and accountability, the cost of single-vote transfer and division has decreased by 9 points at the same level. It fully reflects the ability of the central government to stick to its own discipline and quickly discover problems and solve problems. The continuous demonstration of single-vote operation cost efficiency and effective management and cost control to maintain a healthy profit level in the current market competition. In the second quarter, the fast food industry continues to grow at a high rate, but the price competition is increasing. In the face of a competitive environment, we maintain the strategic goal of the beginning of the year, which is to ensure a high-quality service level and achieve an average business volume of higher than the industry. and achieve reasonable profits. Specific work goals and measures include the following four aspects. One, improve the effectiveness of the network policy, encourage the management of the city to jointly coordinate full network resources, integrate market level, design clear goals, targeted design and implementation of these mechanisms in the In a fair, reasonable, and unified direction, we need to deal with the necessary layers. We need to activate the potential of new and old customers, and form a positive cycle of business volume, revenue, and stable network stability. We need to enhance the ability of Moza and revenue, optimize the network layer structure, and promote the construction of a standstill, division, and distribution ability. We need to deepen the ability to deliver, 3. Continuous optimization of revenue structure, implementation of e-commerce platforms and professional customers' requirements. to clean up the difference between e-commerce logistics products and supply chain service capabilities, and to improve brand awareness and customer confidence. Fourth, to promote the maximization of resources, and to provide more scientifically-adjusted production and investment. This is to support digital resources, to rely on digitalized means, to optimize travel planning, and to be more professional and efficient in operation. To build resources, the whole life cycle management system is further excavated, In the past 23 years, the President has been working with hundreds of people, from a few hundred people to hundreds of thousands of people. The development of this cross-border system combines the wisdom and sweat of all the President's people, with customers, and the trust and support of partners, as well as the care and support of the country and society. In the face of the hot-and-wild competition in the current industry, as well as the challenges in the supply chain, the Chinese Communist Party's strategic focus is to maintain the priority of service quality and the priority of the supply chain, to achieve reasonable profit goals, 我们相信快力市场竞争科学 正在加速演变 中东将坚持健康可持续发展的原则 坚守同线共享的合作理念 拥抱经验加数据的科技创新 承担利他利社会的职业责任 立足当下脚踏实地 憨实基础 面对未来 前瞻不觉 构建护城河 Hello, everyone.

Thank you for joining today's conference call. In the first quarter of 2025, ZTO maintained its industry-leading service quality, delivered a total parcel volume of $8.5 billion, up 19.1% year-over-year, and achieved an adjusted night income of $2.3 billion. which increased 1.6% year-over-year. Our service quality, scale, and profitability continue to lead the industry. In the first quarter of 2025, the express delivery industry grew its parcel volume by 21.6%. However, the proportion of lower-value parcels further enlarged, and price competition continued to intensify. In addressing the misalignment between volume growth and revenue expansion, we remained focused on service quality and volume growth. And while rejecting rational pricing practices, we strategically increased our penetration into the low-value parcel segments. On one hand, we continuously improved end-to-end timeliness and lowered unit costs through process standardization and integration. we were able to lead the way with speed to solidify brand advantages and leverage excellence to further efficiency gains. On the other hand, as a part of the strategy to build long-term competitive advantages, we beefed up efforts to empower our network partners through keeping the policies relatively stable, yet urging improvements in last-mile service capabilities and cost competitiveness. Notably, the company has significant progress in developing differentiated products and services. First, ZTO earned greater trust and opportunity-deepened collaboration with e-commerce platforms and their enterprise customers through continuously improved service quality and coverage. Retail parcel volume increased 46% year-over-year in first quarter. with reverse logistics volume surged over 150%. We strengthened brand awareness and the customer loyalty. Enhanced product mix brought a 12 cent positive shift in ASP for core express services in first quarter. Second, through digitization and accountability matrix, unit transportation and sorting costs decreased by 9 cents year over year. demonstrating ZTO's commitment to self-improvement as well as its ability to detect problems and come up with practical solutions effectively. Combining continuous cost efficiency gains and the disciplined SG&A spending, we maintained control over profitability amid intense competition. Entering the second quarter, the express delivery industry kept a high growth momentum, yet the price competition further intensified. Despite heated competitive landscape, we remain committed to strategic goals we set at the beginning of this year. That is uphold high quality, outpace industry average volume growth, and attain a reasonable level of profit. These specific initiatives and measures include the following four aspects. First, enhance effectiveness of network policy by promoting cross-regional collaboration and resource allocation from end to end. Set targets that are clear and aligned with market dynamics, as well as tailor-made to include performance-specific incentive mechanisms. Under the principles of fairness, transparency, and uniformity, we will adopt a tiered approach to specifically unlock volume potential by both new and existing customers, fostering a productive model that compasses volume, profit, and stability. Second, strengthen last mile capabilities and profitability by layering or de-layering partner network structure where appropriate. Advancing the build-out of network partners, sorting capability and efficiencies. Furthering initiatives such as establishment of direct linkage between outlets and last-mile posts. Offering sufficient profit share to incentivize couriers to service retail parcels. And integrating commercial opportunities for local living. These efforts aim to reduce last-mile costs increase retail parcel penetration, and enrich income diversification for network partners, all of which aims to drive growth in earnings for both outlets, operators, and couriers. Third, continuously optimize revenue mix by meeting the quality demands by e-commerce platforms and enterprise clients. Refining differentiated e-commerce logistics products and supply chain management capabilities. Enhancing brand recognition and customer perception. Last but not the least, maximize resource utilization through systematic and scientific resource planning. Procurement and deployment. Activate underutilized resources. optimize route planning and load rates through digitization and data analytics, and establishment of a lifecycle management framework to unlock potential for greater operational efficiencies. Over the past 23 years, ZTO has evolved from handling less than 100 packages per day to processing over 100 million parcels today. with uncompromising service quality. And we started out with just a dozen or so employees and became a vast and collaborative network of over tens and thousands of partners and constituents. This transformation reflected the collective wisdom and dedication by everyone under the ZTO brand. And embodiment of hope and trust by partners and the customers, as well as desire and expectations from the country and the society. In response to today's white-hot competition and the structural challenges in volume composition, ZTO's strategic priority is to solidify our leadership in quality and scale while achieving a reasonable level of profit. We believe the shift in competitive landscape is accelerating. ZTO will adhere to our healthy and sustainable growth principles, reinforce our shared success philosophy, embrace data plus experience-driven innovation, and fulfill our social responsibility and create value. Remain grounded in the present now, we anchor ourselves with foundational work and tasks at hand. Inspire for future prospects. We proactively plan and fortify strategic long-lasting modes. Being practical and progressive, we aim to build an enduring enterprise that will strive for generations to come. Next, let's welcome our CFO, Ms. Yen, to present the financials results and outlook. Thank you, Chairman Lai, and thank you, Sophie.

Hello to everyone on the call. As I go through our financials, Please note that unless specifically mentioned, all numbers quoted are in the RMB, and percentage changes refer to year-over-year comparisons. Detailed information on our financial performance, unit economics, and cash flow are posted on our website, and I'll go through some of the highlights here. In the first quarter, we adhered to the principle of profitable growth and continued to improve the quality of services and customer satisfaction. Our parcel volume grew 19.1% to reach $8.5 billion, and we achieved $2.3 billion adjusted net income, which increased 1.6%. Total revenue increased 9.4% to $10.9 billion for the first quarter. ASP for our core express delivery business decreased 7.8%, or 11 cents, given intensified competition. The $0.06 impact of decrease in average weight per parcel and $0.16 in incremental volume incentives were partially offset by the $0.12 positive mix shift from increased proportion of KA volume. Total cost of revenue was $8.2 billion, which increased 17.9%. Overall unit cost for the core express delivery business remained flat at $0.94, Combined unit cost of sorting and transportation decreased 9 cents for the quarter, benefiting from economies of scale and various cost productivity gain initiatives. Specifically, unit cost of line haul transportation decreased 13.2% to 41 cents, driven by more effective route planning in conjunction with improvements in fleet operations. Unit sorting costs decreased 10.4% to 27 cents, benefiting from improvements in automation and labor efficiency. Other costs of revenue included KA-related pickup and delivery fulfillment costs paid to out-network partners. And on a total volume denominator basis, it increased 10 cents, which was in line with KA volume increases. Gross profit decreased 10.4% to $2.7 billion, and gross profit margin rate decreased 5.4 points to 24.7%. SG&A, excluding SBC, decreased 13.5% to $517 million. SG&A expenses, excluding SBC, as a percentage of revenue decreased to 4.7%, reflecting strong corporate cost efficiency. Income from operations increased 6.1% to $2.4 billion, and associated margin rate decreased 0.7 points to 22.1%. Adjusted EBITDA increased 0.7% to $3.7 billion, and operating cash flow was $2.4 billion for the quarter, which increased 16.3%. Capital expenditure for Q1 totaled $2 billion, and we anticipate our annual capex in 2025 to be between $5.5 to $6 billion. Now moving on to business outlook. Based on our assessment of today's market conditions and business plan performance outlook, We are reiterating our 2025 full-year parcel volume guidance of $40.8 to $42.2 billion, which equates to a 20% to 24% increase year-over-year. These estimates represent management's current and preliminary view, which are subject to change. Now, this concludes our prepared remarks. Operator, please open the line for questions. Thank you.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone 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 2. We ask that you limit yourself to two questions. At this time, we'll pause momentarily to assemble our roster. The first question today comes from Ronald Kim with Goldman Sachs. Please go ahead.

Thank you, Mr. Lai, Mr. Yan, and Sophie. I also saw the performance of this one-week fiscal document. I want to hear about our growth and our goals. Since the second quarter, the fiscal framework We think that the goal of maintaining a stable profit margin in this competition will be changed. If we want to maintain a comprehensive goal to make the industry faster, we need to increase the amount of investment for the entire network, including some support for demo. This is the support of our partners. First, I would like to hear about the recent situation of the IT industry and our goal of achieving a full-time job. What are your thoughts on this profit? Second, I see that there is a good growth in retail. I would like to hear about the comparison between our reverse logistics and retail and our goal for this business. Thank you. I will translate it. Thank you, management, for taking my question. The first is I want to hear about the competition, particularly into the second quarter, given our target, which is to still grow faster than the industry volumes, seeing that the first quarter, I think we were slightly slower than the industry. So I want to hear how much of investments are we willing to make and take to achieve this volume target and what will be the implications to absolute profits for the remainder of the year. Second is we've seen a very good growth for your retail parcels and also reverse logistics. Want to hear the scale of this business and some of the main targets for this business. Thank you.

感谢你的提问。 这个包裹增长的目标, 今年我们公司的战略就是服务质量, We have done some policy adjustments since the beginning of the year. These indicators show that our business volume has improved a little bit compared to last year. However, the industry has grown by 21.6%, while we have grown by 19.1%. We have not reached the peak yet. There are some factors here. Market competition is indeed relatively strong. There is also targeted competition. There is a certain fluctuation in business volume. Of course, the company is still confident that the total volume of 408 to 421 will be 20 to 24 business volume in the whole year. This is a problem with the volume of the business. You just talked about the problem with the lightning. Lightning is also the focus of our company's work. Because of the lightning, our business will increase. The heat will increase. The stability of the entire network will increase. The lightning situation has always been... The lightning scale of our Japanese military We will continue to deepen our cooperation with e-commerce platforms in the industry. uh uh The whole industry is paying attention to this. The price of the image is going down. The market is growing fast, and the threshold of service quality is high. Our penetration is also increasing rapidly. In the future, we can increase the number of accounts on the image. Thank you for your question, and I will translate for Chairman's answer.

First of all, our goal to achieve our volume growth, and this is still consistent with our strategy, ensuring quality of services and focusing on volume leadership and expanding that leadership while achieving reasonable level of profit. The most recent performance, particularly in our first quarter, while we maintained overall structure of the network policies to be stable, we specifically introduced the existing volume versus incremental volume policies to incentivize our network partners. So on an overall result basis, we have narrowed the gap between our volume growth to industry average, certainly there is still a gap. And then we intend to continue to narrow that because our overall annual strategy remains. And our goal or our guidance for the total year is still staying as we reiterated our guidance. So for the second part of the question, We have focused on upgrading our revenue structure and particularly achieved great results as associated with the retail parcel and particularly reverse logistic parcels. In the first quarter, our daily parcel volume averaged around 6 million. This is a year-over-year increase of 45%. which is significantly outpacing the overall market growth. And among these, we have the reverse logistics exceeded daily volume of 3.5 million and a year-over-year growth over 150%. So these are our continued focus as we deepen our cooperation with major e-commerce platforms which are also expanding their reverse logistic operations so that we are focusing on measures such as reversing transportation capacity. We train our network partners to be more efficient in meeting the quality requirements and implementing incentive policies to ensure service upgrades and expand the operating So as of late, we are looking at our parcel volume increasing even more significantly, reaching towards 8 million or even at peak days, over 10 million parcels a day. In connection with the competition, the reverse parcels per unit price also sustained pressure. However, the reverse logistics services has a high barrier for entrance. ZTO's early mover effort as well as our focus and deep relationship that's built with the platforms will allow us to continue to outpace the rest because everybody else, our peers, are also focusing on this area. We hope to continue to improve the capacity as well as responsiveness to two-door delivery and two-door pickup to help our couriers in servicing our customers properly. As you are aware that improvements of our network partner as well as our couriers' earnings through increasing their proportion of retail parcel to total delivery or e-commerce parcel, their earnings will significantly improve. And that adds to the stability of our overall network. Ronald, I hope that answers your question.

The next question comes from Chinle San with Morgan Stanley. Please go ahead.

Thanks. President Lai, President Yan, and Sophie, good morning. I have two small questions. The first question is actually about the income and cost of the unit. In terms of the unit's income, we can see that this quarter, our unit's volume incentives have gone up to $1.6. Last year, the first quarter was probably four cents, and last year it was probably two cents. I would like to ask how we should look at the volume incentives trend this year. What should the forecast look like this year? And then at the cost end, we actually see that the cost of units in the first quarter is still faster than expected at the beginning of the year. And then I would like to ask, that is to say, consider The price of oil will be relatively low this year due to the drop in unit cost. Will there be any changes in the year-on-year outlook? Will there be any new guidelines? This is the first small question. The second small question is to ask about the company's progress in AI applications. We also know that Zhongtong has been actively expanding its application management and operations at the AI level. I would like to ask if there are any new applications and progress this year. At the same time, I would like to ask how these new AI applications will affect our future competition in the industry. Thank you for taking my question. I have two questions. The first question is about unit revenue and cost. On the unit revenue side, we have seen that in the first quarter, the volume incentives went to around 16 cents. This was higher than about 4 cents in the first quarter of last year and 2 cents for the full year of last year. So going forward, how should we forecast unit volume incentives going forward for the full year? And on the unit cost side, we see that in the first quarter, if we exclude impacts from KA, the unit cost reduction seems to be more significant than we anticipated at the beginning of the year. So taking into consideration of the first quarter performance and also seems like the fuel price are stay relatively low this year. Do we have any like updated the forecast in terms of unit cost reduction for the full year? And my second question is about AI. So we know that VTO has been very proactively explore the the application of AI into its management and operations. So maybe can you update us? Is there any progress with the AI's application into business year to date? And going forward, how do you see the potential impact from AI's application, the merge of AI with our business the impact from that front in terms of our competitive edge versus peers, and in terms of like earnings performance. Thank you.

Thank you for your question. The drop in the income per vote, on the other hand, is an example of market competition. So, this... On the one hand, we are growing in retail business. On the other hand, we are doing well in overall operations and cost management. There are two reasons for the decline. One is that the market competition is definitely lower than last year. The price of the previous year was lower than last year. The second reason is that The structure of the product has increased by a small margin. The weight of the unit has decreased, so the income of the unit has decreased. As for the trend, we must maintain a reasonable rhythm. On the one hand, we mainly need to improve the value of the market, that is, the value of the service, so that the president has more ownership. On the other hand, we also need a reasonable amount. So we will be able to balance the balance between revenue and cars. In terms of cost, we have seen a 6-point drop in the cost of shipping and a 3-point drop in the cost of distribution. One is the scale of the business, and the weight has decreased. The main thing is to continue to reduce costs and increase efficiency. The first is the intensification management. We continue to strengthen the standardization management of the four-part operation, set scientific cost standards, and use information-based tools to test, track and compare data. more accurate and precise positioning and optimization direction. The second is to optimize the quality of salary. We have increased the proportion of paid salaries among office workers, allowing paid salaries to be more efficient, more efficient, more difficult to work, more workload, and develop employees' work efficiency. The third is to be responsible. We will set the driver and the car license plate and position the operation process through the ticket system. In fact, We will use the development of technological tools to promote global management from passive to active transformation to achieve more precise and advanced control. At the same time, we will promote smart devices to reduce human dependence and further improve the space for central selection and reduction of costs. In addition, we will also pay more attention to the cost optimization of the whole chain. By strengthening the ability to build a network, we will promote the cost potential of the end-to-end chain, and fully dig into the network's cost potential. Your second question is about the use of AI in AI, artificial intelligence. Artificial intelligence has been widely used in many scenes in the Middle East. In the division of the land, we used knowledge and visual technology to effectively reduce the number of points. In terms of route planning, through monitoring technology and advanced algorithms, we achieved the optimization of the route. In the division of the land, we achieved the active and automatic production of the four codes. We also launched a large model knowledge library, Thank you for your question.

The first question relates to our unit revenue and cost. The SPA decline largely attributes to two aspects of the Q1 market environment. One is the competition really reached a white-hot stage. The pricing at the front end is continuously sustained pressure from competition, and then the proportion of lower weight or small parcels continue to increase, and that both of these give rise to the necessity of, first of all, increased incentives to meet the competition, some of which are specifically targeted to ZTO, and then two, we do have the positive impact from the reverse NKA volume that is growing significantly and outpacing the total market. And that contributed about $0.12 to offset the volume incentives and weight per parcel decline. So going forward, we continue to emphasize on the fact that volume is important. Certainly, it needs to be supported by high quality of services. So balanced approach continues to be our theme. And when necessary, the volume will be the prioritized focus. So with high quality of services, the price and the volume will be adjusted accordingly based on the market condition and competitive situations in specific markets. And that is our intention to go forward. So again, in overall for your first question relating to revenue or per parcel unit revenue, the pricing is largely driven by competition. On the cost side, we have continued to move forward on our cost efficiency gain initiatives. In the first quarter, the parcel per unit transportation cost decreased by $0.06 and sorting decreased by $0.03. These costs reduction was both driven by economy of scale from the growth in the business volume and, as I mentioned earlier, decline in weight and continued cost cutting helped in a way to improve our operating efficiency measures. Specifically, we refined our management of the operating process, continue to strengthen standardization of each segment throughout the whole process. And we also scientifically set cost standards as a benchmark, utilizing information technology tools to track and compare data in real time, which allows us to detect anomalies more promptly and pinpoint optimization methodologies or solutions more accurately. Second, we also optimized composition structure. We increased the proportion of performance-based pay in our wage structure, linking incentives to operational efficiency, task complexity, and workload. thereby motivating employees to work more proactively and more efficiently. And third, we set responsibilities in a much more granular level. We have paired up drivers to specific vehicles and leveraged a parcel tracing system to locate a long operational process issues or problems that arise. This ensures that responsibility is assigned to each position with clear reward and reprimand mechanisms to ensure standardized operations at every step to the extent possible. In the future, we will continue to upgrade and leverage technology tools to transition from reactive to active management and achieving more precise and proactive control of the entire process quality. And at the same time, we will promote further use of smart technology equipment to reduce dependency on manual labor and further expand cost reduction potential in the transit process. Additionally, we will place greater focus on optimizing costs across the entire production chain by enhancing outlet infrastructure and strengthening the direct linkage between outlets and last mile posts, which will help further reduce delivery or pickup costs throughout the entire process at the outlet level. The next question relates to our AI application in our business operations. AI has been widely applied in multiple scenarios at CTO. For example, in our sorting operation, machine vision technology has effectively reduced sorting errors In our route planning, as another example, our monitoring technology and advanced algorithms have optimized delivery route planning. And in order to, in the order allocation process, our four-segment barcode recognition capability are automatically generating much granular level of delivery directions and help us to launch a larger knowledge-based model allowing not only our employees to quickly identify work inquiries or guidelines as well as the network couriers to more efficiently planning their delivery route so that their service capacity and capability will be freed up to further focus on retail parcels. Looking ahead, we'll continue to actively explore the application of artificial intelligence in last mile delivery, autonomous vehicles, and other areas to continuously, at the right pace, matching technology with the operational upgrade and improvements so that we will continue to harvest benefits from ever-improving technological advancements. Thank you.

Thank you very much.

The next question comes from Amy Han with Citigroup. Please go ahead.

Good morning, Mr. Lai. I'm Amy Han from Citi. Thank you for accepting my question. I have two main questions. One is related to cost. Mr. Lai mentioned that we will invest more in direct training. So I would like to ask about the progress of our direct training in direct training. And how much is the direct training expected this year? Let me translate for myself. So the first question is about cost. So what is our progress in the direct linkage in the first quarter? And how large can direct linkage, or let's say the whole value chain cost optimization, contribute to our unit cost cuts in the franchise side and also in the whole value chain this year? And the second question is related to the possible warming growth in the market competition. So the June 18th shopping festival is approaching. So what is our expectation on the possible volume for the shopping festival, the volume growth? And will the prize competition be some ease in the first six seasons? And because the prize competition came earlier and more intense in this year, so what is our view on the room for further ASP draft for the industry?

好的,谢谢你的提问。 我们今年的其实内部把这个责炼工作当了一项主要的工作。 那为什么要责炼呢? 责炼就是要增加、降低这个派遣成本,增加晚点的盈利能力。 我们今年的目标是末端责炼,就是站点直接到驿站的。 to achieve 42.6% of the target. Theoretically, we can send at least $0.01. If we exceed $410 this year, we can increase our revenue by 40%. We hope to improve the supply of late-time deployment, promote the share-by-share, and increase the maximum discount ratio. Our own measures are because Now, the degree of self-development is relatively high. In the past, our small shops, for example, 10,000 or 5,000 votes, this year, we pushed the focus, pushed the stock market. In an hour, the stock market can exceed 8,000 or 9,000 votes. The cost of 30,000 shops is the lowest. Its cost of exceeding needs 2 cents. In addition, the production ground and... The water and electricity bill may be 3 cents, but if you take it back, it will be 5 cents, which is about 1 cents. This job is a relatively long-term one. We believe that in terms of the situation of the system, including the progress so far, the late-time progress is still very fast. So in general, the late-time downfall, this... We are also making great progress. We hope to achieve our goal of 42.6% this year. The second question is about competition. I believe that the entire industry is under pressure. Whether it is Liu Shan'an or the entire industry. Because indeed, the price of the previous unit this year has dropped significantly. Secondly, the share price of the new building is also increasing. This can be seen from the financial statements issued by each family. The overall profit is also somewhat suppressed. In fact, at this time of the month, As a courier employee, the more confident you are, the more disappointed you will be. Because the stability of the network and the growth of the number of employees is the key to the stability of the industry. So from the central point of view, we should do our best to balance the balance between the central point and the employees. Thank you very much for your question.

First of all, on our direct linkage from outlets to the last mile of progress. This year we have focused on optimizing outlet layouts and promoting direct sorting and direct delivery to increase the proportion of end-to-end direct linkage. Now this is a critical mission for our overall business focus. The goal is to clearly reduce the last mile delivery cost and increase the outlet's earnings. Our goal of 42.6, 42.8 to 42.2 million goal of total year annual volume would translate into about $4 billion of additional cost savings, hence earning improvements for the network partner at the outlet level. So given an example, for the work that we put in mostly relates to introducing sorting equipment, to help improve the process efficiency of our outlets. On average, we have installed a certain equipment that will automate the sortation work done by the outlets. And typically, that single machine can sort 8,000 to 9,000 packages per operation time frame. And for those outlets that have at least 30,000 packages per day are suitable for installing these equipment. So to give you some specific examples, these will help reduce the sorting cost based on the current situation. of $0.02. For the location fixed cost is about $0.03. If you bring the package from our super sorting center to the outlets, the transportation cost will be about $0.05. So this together, $0.10 saving equates to the $4 billion that I referred to earlier. So this process of establishing direct linkage is aimed at not to our profit statement, but to our network partners to ensure their ability to improve efficiency, reduce cost, and secure or solidify the network stability. Because as you know, as competition heats up into today's white hot condition, it becomes ever so important to maintain trust, hope, and belief of the network partners. So our strategy is very clear. As the entire industry sustains pressure from the profit, even though volumes are growing as a total, yet the front end pricing decreasing and the proportion of small and light parcels continue to increase. Everybody, including ZTO, everybody in the industry are feeling the pinch. and as you might be able to see from everybody's earnings announcement. So we are focusing on ensuring the connectivity between the Super Sorting Center to outlets to the network couriers are properly set so that the interests are balanced and aligned. The division of duty as well as the rewards are suited for today's competitive environment, because without a stable network, we have no future to speak of. So on that, our goal being reiterated for the full year, as it draws near to the second half of the year, we would be continuing to monitor the market, be flexible and disciplined in our pricing practice, and support our network partners in their stability as well as long-term trust and belief so that we can all work together to bring in, after the storm, normalized market growth in the long run.

Thank you.

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

Thank you everybody again for joining today's call. As we mentioned that we continue to focus on being our best and setting our sights on of course the competition at hand and as well as at the same time allocating necessary resources to build strong momentum in narrowing the gap to the industry growth in volume, as well as building for a stronger foundation for the future of our business. And we welcome your questions and discussions with us after today's call and look forward to speaking to you all.

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