ZTO Express (Cayman) Inc.

And welcome to the ZTO to Announce Third Quarter 2025 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist 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 your telephone keypad. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Sophie Lee, Secretary for the company. 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.dto.com. On the call today from CTO are Mr. Mason Lai, Chairman and the Chief Executive Officer, and Ms. Hui-Ping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Ms. Yan, who will go through the financials and guidance. They will both be available to answer your questions during the QA 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 risk 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 statement. 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's now my pleasure to introduce Mr. Mason Wai. Mr. Wai 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年三季度,快递行业申收稳健, 总统保持行业领先的服务水平, The completed business volume is 95.7 billion yuan, the same growth rate is 9.8%. After adjustment, the net profit increased by 5% compared to the same period last year, reaching 25.1 billion yuan. In the third quarter, the government proposes to ban internal power and reduce the name of the company, to guide the need for competition, to prevent unreasonable low price behavior, to reduce the overall price level, to stabilize the recovery rate, The CCP is determined to establish a normal development strategy based on the quality of service. This reflects the strict requirements of the country's standard enterprise to further improve and implement high-end and high-quality system development policies, encourage network cooperation partners to reduce capital collection, and enhance the ability of the left-wing party to become the best in the last mile. The CCP's three systems have nearly 50% of the total business volume. The growth of non-electric vehicles has maintained a state of rapid growth. We have optimized the management of cable cars and modernized them, and increased the cost-effectiveness of service vehicles. In terms of transportation efficiency, the President continues to advance the digitalization of new applications, and the application standardization of cost net control mechanisms, and the implementation of more precise resource matching and sales management. The cost of single-voting and division has been reduced by 0.05 yuan. In the last four weeks, the overall business volume of the industry has grown. Despite the decline of Hongguang, there are uncertainties and challenges. The long-term development prospects of the courier and mail industry are still wide. We will continue to focus on the construction of our own products and service capabilities. The next stage is to focus on the following five aspects. First, to adhere to the quality of service, to build a single-to-single quality management system, to integrate the platform index into the evaluation, to realize the sense of responsibility, and to ensure that the service continues to advance. Second, to deepen the ability to build a single-to-single system, to promote the ability to divide points, deepening the chain of supply and delivery to local businesses, reducing the cost of shipping, and increasing the spread of lightning. 3. Improving network policy and mobilization. While ensuring the steady growth of the business volume, strengthening the policy, transparency, and attack-based, precise mobilization and mobilization to develop network internal motivation. 4. Approaching the full chain of supply and delivery effect, 5. to maintain the fairness and integrity of the network, to fully communicate with self-reliant supporters, to solve practical problems in real time, to protect the integrity of the end-of-the-day and the business community, to maintain brand trust and network confidence. Currently, the industry is experiencing a high number of strategic changes to bright colors. Under the macroeconomic situation, the increase in low-price stock prices, has brought a special new technology to China. In the face of change in business structure, China is determined to choose the right development path. We will continue to upgrade our products and manage them in a sophisticated way. In the complex market competition, we will adhere to high-quality service standards and continue to expand our business scale within a reasonable profit margin. At the same time, our members and partners are also experiencing the chain of white-hot price competition, which is actively using the development of end-to-end capabilities and new innovation to open up and diversify the source of heat, continue to optimize business efficiency, and further strengthen the development of the central network's resilience and business confidence. Competition is a process experienced by most industries. In the face of the future, we believe that with China's deep-rooted and vigorous development of the economy, China can continue to develop our unique industrial culture throughout the whole process. By using a strong network of infrastructure, good business capability, and stable financial strength, China will be the first to win in the ongoing development of the courier and logistics industry, and will share the value of cooperation with all parties. Hello everyone, thank you for joining today's conference call.

China's express delivery industry experienced steady growth during the third quarter of 2025. While maintaining its industry leading service quality, VTO grow its parcel volume by 9.8% year-over-year to reach 9.57 billion parcels. Our adjusted net income was 2.51 billion, which rose 5% over the same period last year. During the quarter, government advocated for grassroots interests against evolution and promoted more orderly competition by curbing unreasonable low-price practices. As a result, the overall pricing level across express delivery industries stabilized and began to recover. Adhering to our balanced approach to quality-first growth strategy, CTO rose up to the higher standards for model enterprises and reinforced the principle designed to achieve coordinated development with both high-value and high-quality. We encourage our network partners to reduce costs and increase income by strengthening LASMO pickup and delivery capabilities to become the preferred choice of LASMO market. ZTO's retail parcel volume maintained strong growth momentum and grew close to 50% year on year. Through optimizing the pickup model and the refined lean process management, we enhanced both service quality and the cost efficiency. For transit efficiency, ZTO continued to advance the application of smart technology in transforming standardized cost control mechanisms, implementing more effective resource allocation and the performance matrix. They combined the unit cost of transportation and sorting decreased by five cents year on year. Entering the fourth quarter, overall industry volume growth exhibited some moderation. While uncertainties and short-term challenges in the microeconomic recovery still exist, the long-term prospects for the express delivery and the logistics industry remain positive. We will stay focused on enhancing our product and service capabilities. In the next phase, we will prioritize the following five areas of work. uphold service quality as our lifeline, establish a comprehensive end-to-end quality management service system with integrated platform service indicators for performance evaluations, assign clear responsibilities and accountabilities, ensuring continued service leadership. Second, deepen last-mile capability build-out. Expand upgrades of sorting capabilities at outlets. Further implement direct linkage and incorporate local commercial opportunities. Hence reduce delivery costs and enhance last mile profitability through a higher retail parcel mix. Third, optimize network policies and incentivize mechanisms. While ensuring steady volume growth, Enhance policy transparency and fairness. Implement relevant incentive mechanisms to cultivate intrinsic motivation. Fourth, advance end-to-end cost efficiency and synergy. Leverage cutting-edge technologies and digitization tools to optimize route planning with appropriate match to transit capacity. More scientifically plan for capital investment and utilization. And improve coordination across all stages of operations. Help network partners to continuously improve their operational efficiency. Reduce last month pick-up and delivery costs. And achieve higher earnings. Fifth, safeguard fairness and grassroots interests. Improve communication and governance. promptly address genuine concerns and resolve real issues, protect legitimate rights and interests of outlets and couriers, and maintain trust and confidence in our brand. The express delivery industry is currently undergoing a strategic shift from prioritizing high volume towards development in both quantity and quality. Against today's microeconomic backdrop, The increasing proportion of low-priced parcels presents unique new challenges for top-tier enterprises like VTO. Facing this structural change, VTO stayed course in prioritizing quality of services and winning through efficiency. Through continuous product upgrades and refined process management, we navigated a complex market environment. upheld high quality of service standards and scaled up within reasonable earnings parameters. In the meantime, our network partners, baptized by fierce price competition, are actively innovating and forging last mile capability and business model with more diverse revenue. Better operational efficiency. With higher confidence in the success of operations, the franchising network is becoming even more resilient. Competition is an inevitable growth phase for majority of industries. Looking ahead, we firmly believe that by leveraging the vast potential of solid growth foundation and vibrancy of China's economy, ZTO can perpetuate our unique culture Rely on our robust infrastructure and with our strong operational capabilities and sound financial strength, we are able to seize opportunities in the ongoing development of the express delivery and logistics industry. Together with all our partners, we can create greater value and bring happiness to more people through our products and services. Next, let's invite Ms. Yan to present the financial results and guidance.

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 RMB, and percentage changes refer to year-over-year comparisons. Detailed financial and performance information unit economics and cash flow are posted on our website and i'll go through some of the highlights here in the third quarter in alignment with government's appeal against involution we reaffirmed our focus on quality enhancing our core competencies to advance high quality development a parcel volume reached 9.6 billion which grew 9.8%. Adjusted net income increased 5% to $2.5 billion. ASP for core express delivery business increased 1.7% or $0.02. And the breakdown are the following. $0.18 positive contribution from increase in KA volume, mainly comprised of headquarter contracted reverse logistics products. and services. This growth was partially offset by a 2 cents decrease due to lower average weight per parcel and a 14 cents reduction from higher volume incentives. Total revenue increased 11.1% to 11.9 billion as a combined result of volume and price increase. Total cost of revenue was $8.9 billion, which increased 21.4% as a blended result of significant increase in costs associated with non-e-commerce volume relative to the rate of decrease in costs for e-commerce volume. From the overall unit cost perspective, core express delivery business increased 9 cents to 91 cents. Combined unit cost of sorting and transportation decreased 7.7%, or 5 cents for the quarter, benefiting from economies of scale and various productivity initiatives. Specifically, unit cost for line haul transportation decreased 11.5% to 34 cents, thanks to enhanced route planning, in conjunction with optimizing fleet operations. Unit sorting costs remained stable at 25 cents due to improved labor efficiency through automation, offset by higher costs from new facilities that commenced operations in the quarter. Unit KA costs increased 14 cents, which is in line with KA volume growth. Gross profit decreased 11.4% to $3 billion, and gross margin rate dropped 6.3 points to 24.9%. SG&A excluding SBC grew 16.2% to $633 million. SG&A expenses excluding SBC as a percentage of revenue slightly climbed to 5.3%, compared to 5% in the same quarter last year, primarily due to higher depreciation and amortization expenses. Income from operations decreased 15.4% to $2.4 billion, and associated margins dropped 6.3% of points to 20.3%. Operating cash flow was $3.2 billion for the quarter, representing a 3.2% increase. Adjusted EBITDA decreased 4.2% to $3.6 billion. Capital expenditure for Q3 totaled $1.2 billion, and we anticipate our annual CapEx expenses in 2025 to be $5.5 to $6 billion. Now moving on to our guidance. With visibility into the final quarter of the year, we are adjusting down the annual volume guidance to be in the range of 38.2 to 38.7 billion parcels, representing a year-over-year growth of 12.3% to 13.8%. Volume is critical to a scale-leveraged business. and partner network stability is the foundation for sustainable long-term growth of our company. As macro environment continues to evolve and industry dynamics shifts towards more orderly competition, we are confident in our ability to execute the overall corporate strategy as well as tackling challenges in the near term. This concludes our prepared remarks. Operator, Please open the line for questions. Thank you.

Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad. If your question has been addressed and you'd like to remove yourself from queue, please press star then 2. Once again, that is star then 1 if you have a question. And our first question today comes from Ronald Kyung with Goldman Sachs. Please go ahead.

Thank you, President Lai and Sophie. I want to ask two questions. First, we see that the increase in the number of players in the third quarter is also a bit converging. The increase is about the same. Now the price is also starting to stabilize. How should we think about the structure of the industry and the outlook for next year? Especially when the market is starting to stabilize, how do we look at the long-term Thank you. management two questions one is about the industry structure and outlook given that we've seen growth convergence and pricing have stabilized temporarily but how should we think of the the year ahead and the long-term market structure as we are still in a relatively fragmented industry landscape and second is about integrated logistics opportunities besides the express delivery What are we doing on the higher end or overall supply chain logistics offering to provide a more integrated service to your customers?

Thank you. Hello. Your first question is about the scope of the industry. The scope of the industry must be that you have a good size, good service quality, The cost-effectiveness is obvious. If the cost has an advantage, it will definitely lead to a greater market gap. In other words, this is definitely a matter of doing your own thing. And then the strong will definitely be stronger. The second one is to establish a comprehensive principle. to look at the future and do what we are doing now. First of all, we need to do our own business well. We need to make our express business strong and big. We need to have a limited scale. We need to do our business well. We need to have a good quantity and profit. These are the three main goals of the central government. The second goal is to manage the distribution of benefits between the central government and the employees. Accounting is part of the currency exchange. In China, the currency exchange market is actually larger. So our accounting is mainly for 2C. It's easy to manage a large consumer group. The most important thing is that we want to develop in the field of large-scale logistics. Now, in addition to express delivery, we also have fast transport, cold chain, and warehouse in our ecosystem. Including our tools. We believe that the future competition must be the competition of large-scale logistics. It is a full-scale competition. So we are not just The third point is to make use of the advantage of the scene. For example, how to make use of the advantage of the scene? How to make use of the advantage of the scene? How to make use of the advantage of the scene? How to make use of the advantage of the scene? Thank you very much for your question.

The very first question is really related to the competitive and industry dynamics and where it's going. We believe that the scale and better services, as well as higher efficiency, cost effectiveness, will lead to greater opportunities. So we have continuously focused on becoming the best of ourselves because the future belongs to the stronger ones. Looking into the future, we, again, will continue to focus on now as we look forward. There are several things that we are continuously focusing on. The first one is to strengthen the competitive advantage of our core businesses. And there are three perspectives or three areas that we will be paying attention to. The first one is to strengthen the connectivity or relationship between the outlets, the couriers with our sortation center. It's mainly for allocation of interest, allocation of roles and responsibilities, as well as rewards across these all three points with better equity and equality. The second part is express delivery is mainly serving the 2C consumers. leveraging the installed base will have an opportunity to solve bring solutions for greater logistic market currently we have express delivery we have LTL business coaching in a warehouse cloud operation as well as last mile outlets we believe the competitive landscape will shift towards comprehensive capability focused. We will not only serve to see, we will also serve modern manufacturing, agriculture, as well as more specific scenarios such as bringing products and services from factory directly to consumers bringing agriculture products out of the field directly onto people's dinner table. So for all these specific scenarios, we will participate with higher quality, higher efficiency, and this will lead to a differentiated competitive advantage in the future for us.

Thank you, Mr. Lai.

Thank you. And our next question today comes from Quan Wei Fan with Morgan Stanley. Please go ahead.

Thank you. Thank you, Mr. Lai, Mr. Yan, for giving me the opportunity to ask questions. I have two small questions. The first question is about the policy of anti-corruption. challenges in the near term. near-term challenges到底有没有什么具体的细节可以分享这第一个小问题那第二个小问题也是最近市场比较关心的在几周以前有一个这个来自监管的一个公告说跟中生也是有一个约谈那想请教一下这个约谈的主要的情况以及会不会有什么后续的影响那让我翻译一下我的问题 Thank you, Benjamin, for taking my questions. I have two questions. The first one is about the anti-evolution. So do you have any comments on the anti-evolution's potential impacts, specifically on the outlook for market pricing? We have noticed that the company's guidance on volume for the first quarter of this year implies a quite wide range of growth outlooks. What's the consideration behind this outlook? Specifically, Ms. Yuen just mentioned there are some considerations of, like, near-term challenges. What's these near-term challenges, and what's the outlook for next year? And my same question is about recent news, talking about that regulators had a conversation with ZTO's management, its network management, So is there any details that could be shared, and is there any potential impacts which should be expected?

Thank you. 谢谢你的提问。 你第一个提问是反内卷。 是今年八月份起快递行业推行的反内卷政策, 也绝不在全国大部分地区落实。 to promote the rational return of the price. Since the end of the year, the industry has been under pressure caused by the price increase, effectively leading the industry to return to a healthy and necessary high-quality development track. It is expected that this trend will continue. With the continued strength of the anti-internet policy, industry competition is turning from high quantity development to high quality development, focusing more on product quality and continuous growth. We anticipate that at this time, the market price will remain above the cost line, and competition will be positive. We anticipate that tonight, we will continue to encourage positive development and regular market behavior. On the one hand, the policy will continue to encourage businesses through technology, management and service innovation to improve core competitiveness. On the other hand, for the possible loss of user power, it will affect the stable behavior of MoDAN. The supervision will also maintain high attention and take the time to intervene to ensure the overall development of the entire industry. This president, this head of the enterprise, deeply understands and actively responds to the direction of this supervision. We strive for an important development opportunity. We will take more initiative to demonstrate the responsibility of immigration. One is to continue to increase the investment in automation, digitalization, and other fields. Strengthen self-reliance. The second is to focus more on the power and feedback of the commissioners in the business. To ensure the stability and health of the network. The third is to expand the business to a standing high level. to establish a high-quality standard of development in the industry. The second question, I would like to thank everyone for your concern and attention. On October 28, we had a meeting with the Central Committee of the Regulatory Department. Even though the meeting and the relevant cases pointed to the same industry trend, China's express delivery industry is moving from high-speed expansion to high-speed development. This requires all participants in the industry, especially the leading enterprises, to pursue business scale while putting the priority of service and rules management and network health. These things are an important reminder and pressure to us in this period of time. The company highly appreciates these feedbacks and continues to transform it into an internal optimization and upgrade system. We are fully monitoring and further strengthening the system construction of the service quality, default stability, cooperation partners, support, etc. In the long term, we believe that the initiative to adapt and lead to this high-quality transformation not only meets the expectations of the management and market, Thank you very much for your question.

Sustainability of the anti-excessive competition policy, I think was related to your first question. Since August of this year, the anti-evolution policy has been progressively rolled out across most regions nationwide, aiming at rational recovery in pricing. And this policy directly addressed the pressure caused by excessive price competition since earlier this year. And it caused for the industry to turn towards orderly competition and healthy development. So we expect this trend to continue and the effort will also continue to take effect. As the anti-evolution guidance continues to take effect, industry overall attention is shifting from high volume growth focused to combined effort in high quality development as well as high volume with greater emphasis on service quality and sustainable long-term viability. Once the assessment period concludes, we think market rates are expected to stabilize above at least the cost levels, promoting healthier competition. We also believe that the regulatory focus will continue to advocate high quality development and disciplined market practice. On one hand, Policies will continue to encourage companies to build competitive advantages through innovation, technology, effective managerial skills, and services. On the other hand, regulators will remain vigilant and intervene as needed to seize practices that could harm grassroots interests or disrupt social stability, protecting sustainable long-term growth. As an industry leader, DTO's quality-first and balanced development strategy is fully aligned and we are engaged with the regulatory guidance. We view it as a growth opportunity and will take proactive steps to provide model effect for the sector. First, we will continue with investments in automation and digitization to strengthen our operational capabilities. Second, we will pay close attention to constructive feedback from outlets and couriers to strengthen network stability. Third, we will pay strategic focus to provide benchmark effect for higher quality development for the industry. As to the recent consultation by relevant government agencies, We believe that the recent regulation consultation is consistent with the anti-involution policies as well as our intention. It also is related to certain isolated cases arose from the network complaints. The express delivery industry is shifting from high-volume growth to high-quality development at the same time, and this is the overall guidance with anti-involution policy as well as this specific consultation. It requires all participants, especially ZTO, as a leading player in this industry to provide exemplified model effect. In the short term, we think that these consultation events serve as an important reminder for us, as well as we believe stress tests for our managerial attention and capabilities. We have taken the feedback constructively and seriously and are treating it as a catalyst for further improvements internally. We have thoroughly reviewed our system in feedback as well as providing greater visibility and timely feedback in addressing specific issues. In the long run, we believe that proactively embracing and leading this high-quality transformation not only is consistent with our regulatory and market expectations, but also builds

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Thank you. So I will rewind just slightly where we got cut off. In the longer term, we believe the proactively embracing and leading the high-quality transformation will not only be consistent with the regulatory intention and the market expectations, but also build a more robust and sustainable collaborative model for us to work with all constituents in our industry and in our end-to-end businesses. This will help us attract higher quality customers and partners, ensuring longer and sustainable growth. Thank you for your question.

Yes, ma'am. And our next question today comes from Tanrong Luo with UBS. Please go ahead.

Hi, Mr. Lai, Mr. Yang, and Mr. Sophie. Thank you for accepting my question. I have three small questions here. Actually, it's mainly about the amount of business. Because we have noticed that in the recent period of time, the slowdown in the increase in business volume is relatively obvious, which is the entire industry. So I want to ask you, what is the main reason behind this? Is it still mainly related to the recent price recovery? And the second question is to see how you judge the increase in business volume next year, including this. Let me translate for myself. Thank you, Ms. Lai, Ms. Yan, and Sophie for taking my question. My question is all about volume, as we noticed that the industry has experienced more or less notable, like volume slowdown recently. So just curious about the underlying drivers, perhaps, is that more related to the pricing that covers recently? And also, how should we think about the volume growth for next year? And also, any potential changes in competitive landscape or competition dynamics under a volume slowdown going forward? Thank you so much.

Thank you for your question. There are three questions. One is the release of the statement, the second is the statement of next year, and the third is the change in the rules. Recently, in October, we just officially announced the growth of our industry. I haven't seen this situation for a long time. I think the main way to fight the industry is to promote the price. The price is rising under the policy of anti-corruption. This change has caused a certain impact on some low-priced e-commerce companies with sensitive prices. The price of low-priced industries has dropped. This is the main impact. That is, you have a few dollars in your pocket. The original profit is a little bit higher, because your express delivery is very high. So this part is being revealed. Overall, the industry is trying to adjust to a healthier direction. Express delivery companies with superior quality and mature products will have more competitive advantages. This is the way to will increase the proportion of low-cost shipments. Next year, we expect that the business volume will remain at a healthy normal level. It is not possible to say that it will be about 15 or 16. I expect that it will be about 15 or 16. The industry will bid farewell to the beginning of the development of mass-produced development, but will not give way to high-quality development. Market resources will flow more, focusing on the development of service and efficiency. The future of the industry will be divided into the management of continuous guidance and the promotion of joint promotion under the self-reliance of the industry. Yes, indeed.

Thank you for your question. We have noticed a long absent decline or deceleration in the industry. The recent announced October average growth of the industry is low single digit, and that's been not seen for a long period of time. So we think that the recent deceleration in the industry growth is primarily due to the price increase driven by the anti-involution policy. This adjustment where overall logistic price has increased and has a greater impact on low margin and highly price sensitive e-commerce merchants resulting in a decline in that segment of the parcel. Overall, the sector's parcel volume mix is shifted again towards a better structure with higher economics. Leading express delivery companies with stronger service capabilities and well-established product portfolios are poised to regain their competitive position. In other words, for those that typically gained volume from lower-priced packages will be impacted greater, negatively. Looking ahead to next year, we expect the industry volume growth to perhaps stabilize and most likely to stay around 10%. The sector is shifting away from a singular focus on volume growth towards higher quality as well as quantity development. With the market resources increasingly gravitate towards service quality and operational efficiency, the future reshaping of the competitive landscape will be driven by ongoing regulatory influence alongside corporate self-discipline and standardized operations paving the way for a healthier, competitive landscape, and sustainable long-term growth.

Thank you.

And our next question today comes from Woojin Lim with CPX Securities. Please go ahead.

Hello, Mr. Lai, Mr. Yan, and Ms. Sophie. Good morning, everyone. I'm Lin Mu-jin, a specialist in central health care. Thank you very much for giving me the opportunity to ask this question. I mainly want to ask two small questions. The first one is about the cost section. We can see that in 2025, the production capacity of our companies is relatively normal. As Mr. Lai mentioned, the competition in the industry is also acting from high numbers to high quality. If we continue to produce in a position where the price is relatively high next year, it may lead to the increase in volume, which may not be as high as we previously expected or as high as we expected in the beginning of the year. Will this bring a cost pressure? As a result, how do we look at the cost of the year 2026? The second question is about the price competition in some areas. We also pay attention to the fact that after setting the price at the bottom of the production zone, the quantity and volume of new components may decrease. Will it lead to the center of the price competition moving to a higher price range? So, first of all, thank you for taking my questions. And I guess my first question will go with the cost reduction. So, if the anti-emulsion policy continues in 2026, considering that the industry of 2005 would be actually set for a higher growth rate in expectation. So, would this possibly bring any challenges in our cost reduction if a lower possible growth shown in 2026? And as a result, could we be shedding more some light on the cost improvement in 2026? And the second question would be regarding to the competition structure. So as we can see that after setting price for some parcels in the major markets, for example, like in Guangdong U and other province, would this lead to some more focus, shift of the focus on the price competition from the lower equilibrium range to the higher one? And I guess that's my question. Thank you.

Thank you for your question. In fact, the cost has always been a very important aspect of our CCP. In the past, in terms of production and investment, the first stage, the cost of transportation in China was very obvious in the entire industry. Over the years, companies in various industries have been investing in real estate. In fact, everyone is using the same equipment and vehicles, so the cost of transportation will be closer. We will... I think next year, the total cost will still go down. The transfer will be smaller. But the total cost is divided into four aspects. In addition to the transfer, there is also the collection. So the cost of the whole chain road, our president is working on it this year, including the 3 plus 1 work at the end of the year. The results are very obvious. So for the Chinese Communist Party, we will continue to strengthen the digitalization ability to establish intelligent investment and reasonably distribute the cost optimization of each section of the circular transport card. There is still room for improvement. We have fresh knowledge in terms of cost and keeping it clear in the industry. The second one you mentioned is the question of competition. Indeed, as you said, with the introduction of anti-discounts and the rise in prices, the price of small and medium-sized stores is decreasing. We will use the capacity of various places to create appropriate resources. For example, in the region of the Chinese Ministry of Foreign Affairs, we will, according to the regulations of the Standing Committee, we will make appropriate adjustments on the supply chain. In general, we are confident that in the cost unit, in each area, we will still balance the capacity, Thank you. I believe we still need to take advantage of the competitive advantage and sell it to a more prominent leading advantage.

Thank you very much for your question. Yes, the ETO has always been focusing on our cost efficiency. In the first development of our company, because of our attention in capacity and infrastructure development, our competitive cost advantage is very apparent. And then as the industry progressed, you saw that various other peers have also invested in facilities, equipment, as well as transportation capabilities. You saw that our competitive cost advantages across the industry is becoming more close to each other. We think that the focus now is not just in transit and line haul because out of the four segments of the end-to-end services, we have collection as well as delivery. For the total end-to-end cost reduction or cost efficiencies, we have initiated work in, for example, the 3 plus 1 effort so as to continue to improve the cost equation across the whole process. We invested in technology, invested in higher efficiency in matching the capacity as well as the demand for capacity. We have helped our network partners to improve their automation capabilities as well to improve their efficiency, allowing, for example, the couriers to have more time in focusing on their delivery work, at the same time reducing the outlet's overall last mile cost. We do believe that with the existing operational layout, the cost advantage will eventually diminishing. However, with increasing attention to the end-to-end all segments coordination and integration in reducing cost improved efficiency, not only the transit and sortation segment of our business will continue to lead in cost efficiency as well as our network partners will gain advantage in becoming the lowest cost in the last mile as well as the pickup. We so hence have high confidence in maintaining our cost leadership going forward. And then the second part of your question relates to what we will what we have observed going forward in the smaller packages becoming lesser component of the total volume. So what we do, we will, based on the capacity layout of our whole network, appropriately allocate and matching the resources. For example, in the middle and the western part of our network, we should be able to gravitate more towards some policies for higher weight. And from overall perspective, we believe we do have high confidence in managing the policy in addressing the shift in the mix of our volume. We, again, will continue to focus on our balanced approach in developing volume, scale, and the reasonable profit level, all under the premises of high quality of product and services going forward.

Thank you. Apologies. Please proceed.

Yeah, we believe this will conclude our call for today. Again, thank you, everybody, for joining us, and we look forward to have further discussions with you offline.

Thank you. This concludes today's conference call. We thank you all for attending. You may now disconnect your lines and have a wonderful day.