ZTO Express (Cayman) Inc.

Good morning and welcome to the ZTO Express first quarter 2026 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 this event is being recorded. I would now like to turn the conference over to Sophie Lee. Please go ahead.

Thank you, Kelly. Hello, everyone, and thank you for joining us today. The company's results and the investor relations presentation were released earlier today and are available on the company's IR website at ir.zto.com. On the call today from ZTO are Mr. Mason Lai, Chairman and the Chief Executive Officer, and Mrs. Hui-Ping Yan, 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 guidance. They will both be available to answer your questions during the Q&A session that follows. I remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties, and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required under law. It is now my pleasure to introduce Mr. 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。 2026年,一支赌在宏观经济稳中有进,消费需求持续受换的良好环境下,快递行业整体保持增长,业务量同比增长5.8%, As the industry continues to improve its internal policy, the price continues to stabilize and recover, and the competition accelerates the return of rationality, the industry's business quality significantly improves, and it creates favorable conditions for the high-quality development of the leading industry. Within the report, the company is firmly grasping the industry's future, and the core indicators are outstanding. The company's business volume reached 96.7 billion yuan, which is the same as the growth, 23.8 billion yuan, a growth of 5.2%. Based on non-management factors, after adjustment, the net profit increased by 22%, and the profit-saving capacity increased steadily. The retail business has increased by 65%, and the product structure has continued to improve. The single-vote supply and division costs have increased by six points, and the digitalization and materialization operations have been effective. The cost has been reduced, and the business has not been strengthened. With the leadership of the UAE industry, the policy environment has been established, and the operations have been efficient, and the products have been innovative. First of all, the macroeconomic economy and the consumer environment continue to improve. Online consumption is steadily growing. Industry monitoring and direction is clear. Control is accurate and effective. For the healthy and sustainable development of the express industry, we have provided a strong base and key network. Fourth, the company is firm on the policy direction, and is active in protecting the industry's positive ecology. As the head of the industry, 我们坚决拥护反内卷政策, 带头维护公平有序的市场秩序。 坚持理性竞争,价值竞争, 与全行业共建健康发展环境。 第三,公司坚守长期主义战略定力, 不追求短期接近扩张, 始终以网络健康服务提升, 盈利稳健为核心。 Fourth. Fifth. The company's urgent market demand to optimize the product structure, surround the high-value products and industry channels, and create differentiated competitiveness. Promote business from e-commerce to single-use automation to diversify the transformation of high-value institutions. The profit and loss ability is significantly enhanced. Looking at the next stage, the company will continue to focus on high-quality development as the core. to adhere to the long-term policy, focus on value creation, and focus on the following five aspects of work. First, to implement the national policy and industry supervision requirements, to continue to lead the anti-discrimination work of the industry, to maintain the positive competitive environment of the industry, and to promote the high-quality development of the industry. Second, to continue to deeply root the industry, to strengthen the internal work, not only to promote the reduction of cost-effectiveness in all aspects, Thank you. 4. 5. 6. 7. 5. Continue to improve the shareholder return level, rely on stable cash flow and good profit, and improve the standardization of cash distribution and share return support. to optimize the capital return structure and create long-term, stable, and sustainable investment returns for the stock market. Investors, the current industry is in the key transition from scale-driven to value-driven. The trend is clear. The capital value will continue to advance. The President will continue to invest in high-quality services, The first chain of costs, stable profit as the core, insisting on making three guarantees, to ensure that network partners' profit will grow steadily, ensure that business owners' income will continue to increase, ensure that Zhongtong will develop news resources. With a long-term value of pursuit of large investors, all network partners will continue to move forward. OK, let me translate first.

Hello, everyone. Thank you for joining today's conference call. In the first quarter of 2026, against a backdrop of steady microeconomic progress and continued growth in consumer demand, China's express delivery industry maintained overall growth with parcel volume up 5.8% year-over-year. As anti-involution policies continued to deepen, pricing steadily recovered, competition accelerated to its return to rationality, and overall industry operating quality improved significantly, creating favorable conditions for leading enterprises to pursue high-quality development. During the quarter, we seized the industry opportunities and delivered strong results across key metrics. Puzzle volume reached $9.67 billion, up 13.2% year-over-year, significantly outpacing industry growth, with market share expanding by 1.2 percentage points, further solidifying our leadership position. Adjusted net income was $2.38 billion, up 5.2 percent year-over-year. Excluding non-operating items, adjusted operating profit increased 22 percent year-over-year, reflecting improvements in profitability. Our retail parcel volume grew 65 percent year-over-year. Product mix continued to optimize. Combined unit cost of transportation and sorting decreased by six cents year-over-year. with digitalization and lean management delivering tangible results, further reinforcing our cost advantage. Our strong first quarter performance was driven by a favorable policy environment, combined with our strategic focus, operating efficiency, and product innovation. First, the continued improvements in the microeconomic and consumer environment, with steady growth in online consumption alongside clear regulatory guidance and effective policy measures, provided a solid foundation and a strong support for the healthy and the sustainable growth of the express delivery industry. Second, we are firmly aligned with policy direction and have been proactively upheld a healthy industry eco atmosphere. As the industry leader, we consistently supported the anti-involution policy took the lead in maintaining market order and committed to rational and value-driven competition, working with the broader industry to build a healthy environment. Third, we stayed the course on our long-term strategy without pursuing short-term aggressive expansion and remained focused on network health, service improvement, and profitability. We continue to strengthen infrastructure deepened digitalization and enhanced end-to-end management capabilities, continuously building long-term competitiveness. Fourth, through optimization of transit efficiency, through improvements in organization and refined sortation management, we achieved a further reduction in unit costs, converting cost advantages into competitive mode in profitability. Fifth, we closely checked market demand and optimized our product mix with focused efforts on higher value retail puzzles, reverse logistics, and other differentiated offerings. This drove a structural shift from single-channel e-commerce volume towards a more diversified and improved value mix, meaningfully strengthening both profitability and resilience against the business cycles. Looking ahead, we will continue to prioritize high-quality development, thinking long-term, and insist upon value creation. Our key priorities for the next phase are as the following. First, fully implement national policy and industry regulatory requirements. Continue to lead the industry's anti-involution efforts. Safeguard a healthy, competitive environment. and drive the industry toward high-quality development. Second, deepen our core business internal strengths and capabilities. We will continue to advance cost initiatives for efficiency gain across all fronts, enhance timeliness and customer satisfaction, solidify our service reach, and enhance brand premium. delivering long-term value through discipline and sound execution. Third, further integrate the principles of fairness and transparency into network management. Continue to optimize network policies and improve network management capabilities, making our policies more equitable, our management more efficient, and our network more stable and resilient. At the same time, through digitization, best practice or expertise sharing, and targeted cultivation, we will help all network partners to reduce costs, improve operational capabilities and profitability, reinforcing the foundation and building a healthy ecosystem of shared success with mutual prosperity. Fourth, genuinely protect the rights and the well-being of frontline careers. We will continue to optimize incentive mechanisms, strengthen care and recognition, ensure steady income growth for careers, and continuously enhance their sense of fulfillment, accomplishment, and professional pride, assuring the most essential of our service and operations. Fifth, continuously enhance shareholder returns. Backed by strong profitability and cash flow, we will refine our regular cash dividend and share repurchase mechanisms, optimize our capital return structure, and deliver consistent returns to our shareholders. To all of our investors, our industry is at a critical inflection point, transitioning from scale-driven to value-driven development. This consolidation among leading players is apparent, and the value of the industry leaders will continue to be prominent. ZTO will stay committed to high-quality market presence, high-quality service, low end-to-end costs, and sound profitability. We will relentlessly deliver on our three key commitments, which are steady earnings growth for our network partners, continuous wage improvements for our couriers, and healthy longevity for ZTO. Guided by our long-term value principles, we look forward to moving forward alongside our network partners with confidence in turning in consistently outstanding report cards to the market and our shareholders. And next, let's invite our CFO, Ms. Yen, to present the financial results and guidance.

Thank you, Chairman, 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 R&D, and percentage changes refer to year-over-year comparisons. Detailed information on our financial performance, unit economics, and cash flow results are posted on our website, and I'll go through some of the highlights here. In the first quarter, we continue to adhere to our quarterly first strategy, which is consistent with the regulatory call against involution. As our operating efficiency continues to lead the industry, we achieved increases in both volume and profit. Our parcel volume grew by 13.2% to $9.7 billion, with a 1.4 points increase in market presence. Our total revenue increased 22% to $13.3 billion. Excluding non-operating factors, such as government subsidies or tax rebates, which fluctuate from quarter to quarter throughout the year, our adjusted operating profit increased by 22% to reach $2.6 billion. Adjusted net income was $2.4 billion, which increased 5.2%. ASP for our core express delivery rose 11 cents, or 8.2%, driven by an 18-cent positive impact from increased KA volume mix, led by higher value reverse logistics, offsetting 9 cents increase in volume incentives Increase in average parcel weight brought an additional $0.02 lift to our ASP. Total cost of revenue was $10 billion, which increased 22.5%. Overall unit cost for the core express delivery business increased 8.8%, or $0.08, which includes KA cost increase of $0.15, that was consistent with the strategic expansion of RKA volume. The combined unit sorting and transportation cost decreased by 8.8% or 6 cents, driven largely by economies of scale. Specifically, unit cost of line haul transportation decreased 10.5% to 37 cents, reflecting optimized route planning and enhanced load efficiency. Unit sorting costs decreased 6.4% to 25 cents thanks to continued improvements in labor and automation productivity. Gross profit increased 20.3% to 3.2 billion, and gross profit margin rate decreased slightly by 0.3 points to 24.4%. SG&A expenses excluding SBC increased 14.9% to $594.5 million. SG&A excluding SBC as a percentage of revenue declined to 4.5%, reflecting strong corporate cost efficiency. Income from operations increased 5.8% to $2.5 billion. and associated margin rate decreased 2.9 points to 19.2%. Upgrading cash flow was $2.8 billion for the quarter, representing an 18% increase. Adjusted EBITDA increased 6.9% to $3.9 billion. Capital expenditure for the quarter was total $1.8 billion, and we anticipated annual CapEx in 2026 to be around $60 billion. To be $6 billion, I'm sorry. Now, moving on to our guidance. Based on current market and operating conditions, we are maintaining our previous guidance for the year that parcel volume growth of 10% to 13% year-over-year representing a parcel volume range of $42.37 billion to $43.52 billion. These estimates reflect management's current preliminary view and are subject to change. This concludes our prepared remarks. Operator, please open the line for questions. Thank you.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. For the sake of keeping to time today, please limit your questions to two per person. The first question comes from Plimley Son with Morgan Stanley.

Thank you, operator. 谢谢管理层接受我的提问,也祝贺公司非常强劲的一季度的扣除这个政府的补贴以后的利润增长。 我有两个小问题。 The first question is about cost. We see that the optimization of unit cost in the first quarter is still relatively significant. In fact, it is also more than the cost reduction of this target than the goal given by the management in the beginning of the year. I would like to ask about the change in unit cost for the whole year. Will there be any new adjustments to this goal? And I would like to ask about the impact of rising oil prices on unit cost in the future. The second question is about the turnaround. I would like to ask about the turnaround. How does it look now? Let me translate for myself. Thank you, Benjamin, for taking my questions, and congratulations on the very strong profit growth, including government grants. I have two questions. The first question is about unit cost. We have seen a very impressive unit cost reduction in the first quarter this year, and it has been better compared with management's four-year target set at the beginning of the year. So I want to discuss what's the key drivers of the cost efficiency gain in the first quarter. Any changes to our full year cost reduction target? I specifically want to discuss the impacts from diesel price hikes on unit cost going forward. The same question is about entire evolution. So how has the policy initiatives playing out year to date? What's the management's outlook on industry pricing dynamics going forward in the rest of the year? I specifically want to understand whether industry price dynamics could fully pass through the potential cost inflation from diesel price hikes. Thank you.

感谢你的提问。 一制度的成本表现, 一制度单票运输成本, 0.37 yuan, the same price dropped by 10 points. The cost of division is 0.25 yuan, the same price dropped by 2 points. This performance is mainly due to the increase in the level of automation, digitized tools, deepening applications, and refined management. Promote vehicle and cargo capacity, manpower efficiency, and other core indicators continue to improve. The first is the cost of transportation. The second is the deepening of digitized tools. Through transportation, Improving transport efficiency and route design effectively reduce the cost of transportation at the same time. The second is to optimize load capacity indicators and assessment mechanisms, reasonably set load weight standards, and use precise physical release methods to promote the establishment of load capacity measures in all seven cities, and use the scale effect of growth in business volume to effectively increase load capacity. The third is to continue to improve the management of the fleet, improve the standardization of the vehicle, and reduce the cost of transportation for drivers. The second is to increase the cost of division. On the one hand, we continue to increase the investment in centralized smart devices. By monitoring and monitoring the old and new devices, we can improve the efficiency of the device operation while controlling the cost. We expect the core cost of the mid-term part of the year to drop by 0.3%. China China China China China China China Second, anti-insurgency policy. and industry price levels. Since the Spring Festival, the policy of anti-corruption has continued to be implemented, especially in the food and grain area. At the same time, the power of implementation is increasingly strengthened. With the trend of anti-corruption policy, the low price of industry continues to decrease, and the price level is improving. Thank you.

Now, let me help translate the Chairman's answer. Our first question is relating our cost. In the first quarter, I won't go through all the results, but the fact that this cost performance improvements was primarily driven by the implementation of improved automation and which further enabled by our digitized solutioning, such as the intelligent tools and refined the management process. And all these led to our continuous improvements in the core metrics, including vehicle load rates and per capita efficiency. In terms of transportation costs, Chairman further elaborated. First, we widened the implementation of digitization tools which optimized transportation capacity, structure, and route design so as to effectively lower transportation costs while shortening the end-to-end transit duration time. Second, we refined load rate metrics and measurement mechanism by setting reasonable loading standards and adopted precise gross volume measurements We also implemented tier incentives for load rates, which correlated with volume levels, hence fully leveraged economies of scale so as to improve overall loading efficiency. Third, we continuously improved fleet management by establishing refined standardized cost model for vehicle operations and maintenance. as benchmark for our drivers, thereby lowering operating and maintenance costs continuously. In terms of sorting costs, on one hand, we continue to invest in automated equipment that is armed with digitized solutioning at our sorting hubs, utilizing real-time monitoring and upgrading old equipment to improve operational efficiency and facility automation level while controlling costs. On the other hand, we have reviewed our workforce deployment and enhanced individual accountability by a clear reward and reprimand mechanism, hereby boosting per capita productivity. In terms of our cost reduction targets, we expect the core transit-related cost to further decrease for the full year beyond transit centers. We will place greater emphasis on end-to-end cost reduction. This year, we will focus heavily on network optimization, further empowering our outlets and enhancing their operational capabilities as well. We'll continue to encourage outlets to install automated equipment, deploy unmanned vehicles, and promote direct link models to continuously reduce last mile cost. This entire end-to-end cost focus will further improve our own sorting and transit-related cost as well, because it's all integrated and interrelated. As far as the impact on the fuel prices, due to the tension in the Middle East, domestic diesel prices increased significantly in March. However, as international tension continued to be managed, price will – price has somewhat declined in late April. Overall, the price recovery driven by the anti-evolution policies has largely offset the impact of high fuel costs, and certain provinces have absorbed rising diesel costs through fuel surcharges. Therefore, Oil price volatility is expected to have limited impact on our total network-wide cost in the second quarter. Now for the question relating to anti-evolution. Since the Chinese New Year, the anti-evolution policy has been consistently implemented, and the effects are meaningful, particularly in major high-volume regions. Meanwhile, enforcement has been progressively tightened in certain provinces where implementation had previously lagged. As the policy continues to take effect, the volume of low-priced parcel has continued to shrink, driving a further recovery in price level and effectively restoring the level of interest of both outlets and couriers. Benefiting from this improving competitive environment, the company has achieved simultaneous growth in volume and pricing with restoration of market share. As the industry leader, ZTO remains committed to stay closely aligned with the government's anti-involution initiatives. We will continue our balanced development strategy that prioritizes service quality while effectively safeguarding the rights and interests of our last mile network. We are confident that with productive regulatory guidance, the industry will develop in a healthier manner, more orderly competition, and also pricing level will be stable overall.

Thank you, Garniton.

Your next question comes from Steve Q with Goldman Sachs.

Good morning, President Lai, President Yan, and Sophia. Thank you. This is my question. I would like to ask a question related to AI. In the past, we have seen that the Middle East has also made a better use of electronic tablets and smart devices, which has also formed a certain advantage. I also heard Mr. Lai's comments on the improvement of automation, digital attack applications, and unmanned vehicles. So I want to ask, in the future, in the era of AI, how do we consolidate and expand our leading advantage in terms of technology? What are some of the mistakes that have been made related to AI, and what are the future prospects for AI and快遞环节赋能的展望? Thanks, Benjamin, for taking my questions. I'd like to ask the questions on AI. So video was an early mover in large-scale adoption of electronic waybills and automated sorting in the past, which established a first mover advantage. So I want to ask, in the AI era, how do you consolidate and expand these technology leadership? and could you share what initiatives have already been implemented, as well as your outlook on how AI will empower the various stages of the express delivery value chain going forward?

Thank you. Thank you for your question. Our core idea is to allow AI to warm up deeply, and the whole chain of networks to go from the downfall to the recovery. The results of the downfall are mainly reflected in three aspects. One, . . . . to reduce manpower by another 5%. Thirdly, the last step is to implement the high-precision maps in the post-war period, the delivery route planning, and other scenarios in depth, to help the large network to reduce the cost of broadcasting by more than 12%. In the retail industry, we have also achieved the support of the Japanese military's 10 million orders to reduce traffic. In the large-scale application, we are promoting from the implementation tool to the management decision-making application. Our online smart question system is applied to customer analysis, route planning, external index, operation analysis, service quality, late-time progress cost, and other areas, so that the management decision-making analysis in the management area can be from a few days to an hour. In the future, We will build a multi-technology structure, allow the system to freely modify and operate various framework optimization suggestions. In the next half year, we will complete the voice-to-speech AI application, and cover the entire network, including 6,000 network points. In short, AI has become one of the central core principles. We will continue to transform technology into cost and practical advantages. Thank you for your question.

Our core strategy is to continuously deepen integration of our AI technology across the entire network, including transition, from cost reduction and efficiency enhancements to operational empowerment. The tangible results achieved to date are primarily reflected in three areas. One, sorting operations. The combination of 3D digital twins and machine vision technology has been deployed across around 25 or so sorting centers, reducing the missorting rate by over 60% while significantly lowering labor costs. Two, customer service. Our AI-powered customer service system now automatically process over 70% of end-to-end service tickets. All agents, such as Wen Xiaotong, cover more than 80% of daily business inquiries from network outlets. In the first quarter, the rate of customer service escalations to human agents was further reduced by 5 percentage points. Three, last mile dispatch. Leveraging our proprietary high precision mapping data We have applied AI in scenarios such as last mile post site selection and delivery route optimization. This has helped large network outlets reduce short distance transportation costs by 20%. In the retail parcels business, our AI system now supports the clear dispatch of tens of millions of daily orders. In the era of large language models, we are advancing their evolution of implementation from execution tools to operational decision-making partners. Our smart data inquiry system has been deployed across various domains, including customer analytics, route planning, e-commerce platform service index monitoring, operational performance analysis, service quality assessment, and inbound cost management for network outlets. As a result, the time required for operational decision making at the regional management level has been shortened from several days to just hours. Looking ahead, we will continue to build a multi-agent architecture that enables the system to autonomously provide optimization recommendations across various operational functions. Within the next six months, we plan to complete the upgrade of our voice customer service AI, which will be deployed across nearly 6,000 network outlets nationwide. In summary, AI technology and its implementation has become a core strategy prioritized for CTO. We will continue to translate technological advancements into cost and time efficiency advantages, further solidifying our leadership position and generate long-term value for our shareholders.

Your next question comes from Erin Lillow with UBS.

Hello, Mr. Lai and Mr. Yan. Thank you for accepting my question. I have two questions. The first one is that we have observed that in the context of the reversal, the increase in the industry has retreated. So I would like to ask you if your expectations for the increase in the industry have changed. The second question is whether the competitive pattern is also accelerating in this context. The second question is about our retail business. Let me translate myself. Thank you, management, for taking my question. I have two of them. First, we have observed that industry growth has decelerated against the backdrop of the anti-evolution trend. Could you please kindly share your latest outlook on industry growth expectations and whether the competitive landscape is experiencing accelerated divergence? Second, regarding our retail parcel business, could you please kindly provide an update on its current development status and the parcel profit level at this stage? Thank you so much.

感谢你的提问。 第一个问题就是增收预支和竞争格局。 随着反内权持续推进,低价无需竞争, The industry is expanding from the initial phase to high-quality development. Business quality prioritizes the new stage. After experiencing stage adjustment, the industry growth is more stable. Growth center from pure quantity growth to scale, efficiency, quality system, improved sustainable growth. The competition of the fast food industry is a comprehensive competition of service quality, cost advantage, and network capability. Along with the high-quality turnover of the industry, the share price has been increased to the head of the stock market. The focus of the competition is to choose the comprehensive strength to compete from the price to the price. The Chinese Communist Party insists that the two sides should work together. On the one hand, Han Zhe is trying to take the lead. On the other hand, it continues to strengthen the cost advantage, increase the gap between service quality, promote market share, and increase business value at the same time, and consolidate the top advantage of the industry. The second is the development of retail business and the situation of profit. Retail business, especially the rapid development of retail business, This is a significant achievement in the development of high-end vehicles in the industry. In the first quarter of this year, we have seen an increase of about 9.7 million units. This is very obvious. In the second quarter of this year, we have seen an increase of more than 9.4 million units. Although the price of Nie Xiangjian has fallen due to market competition, it is still in control of the cost control of the scale effect and金氏化, and the cost of single-voting is still being optimized. At present, Nie Xiangjian's single-voting profit contribution is higher than that of ordinary e-commerce, effectively increasing the company's overall single-voting profitability. Thank you.

Thank you for your question. Your first question relates to the industry growth and competitive landscape. So as the anti-involution policy continues to advance, low price competition is gradually diminishing. The industry is shifting from extensive scale-driven expansion to higher quality development based on operational efficiency. Following a period of adjustment, the industry's growth trajectory has become more pragmatic with the focus shift from more sheer parcel volume growth to sustainable growth driven by synergistic improvements across scale, profitability, and service quality. The nature of competition in the express delivery industry involves a comprehensive contest of service quality, cost advantage, and network capability. As the industry transitions towards higher quality development, market share is expected to further consolidate among top players. And the competitive landscape is becoming even more polarized. The competitive focus has shifted from price-driven to relying on comprehensive strength. ZTO is committed to pursuing both volume and quality growth. On one hand, we will solidify our leading position in parcel volume while sustaining our brand premium, which is based on service reach and stability. On the other hand, we will further strengthen our cost advantage and widen the service quality gap versus peers. This will drive concurrent gains in both market share and operating efficiency, enforcing our leading position in the industry. Your second question relating to our retail parcel businesses. The rapid development of our retail parcel business, specifically the reverse logistic parcels, is a outcome of our volume quality balanced strategy and our commitment to build a tiered product portfolio amid the industry's high-quality development. In Q1, average daily retail parcel volume reached approximately 9.7 million, which indicates a meaningful growth rate. In the second quarter, our reverse logistic parcel volume further increased, with our average daily volume exceeding Although the price of reverse logistic parcel has slightly declined due to competition, the unit cost has continued to optimize through economies of scale and refined cost management. Currently, the unit profit contribution of reverse logistic parcel remains higher than that of our traditional e-commerce parcels.

Your next question comes from Mujin Lin with Citus Securities.

Hello, thank you. Good morning, everyone. I'm Lin Mu-jin from the Ministry of Education and Welfare. I'm also very grateful to Guan Licheng for giving us the opportunity to ask questions. I mainly want to ask a small question. Currently, we can see that in Guangdong and Shandong, there is a legal process that continuously promotes the rights and protections of children. I would like to ask how we can look forward to the pace of social security promotion in the second half of this year. So first of all, thank you for picking me up. And I guess my question will go with the legislation of the protected rights of delivery workers in the end. So as we can see that the legislation of protecting the rights of delivery workers is being gradually implemented in the place like Guangdong and Shandong and so much so forth. So how should we envision the pace of the social security promotion and if it is gradually implemented in the second half of the year, would that be any guidance regarding to the quantitative impact on the cost of the entire network?

Thank you. Thank you for your question. We are also very welcome to the early landing of social security policy. In the short term, the social security policy will increase the cost of single-voting accordingly. However, from the long term point of view, the establishment of a stable and secure labor system will help to strengthen the network, reduce the loss of personnel, and further hinder the lack of service quality. As a leading enterprise, the President will continue to play a leading role in promoting the industry to achieve high-quality development on the legal basis. In the future, Thank you very much for your question.

I will translate and supplement for Chairman's answer. Since the establishment of our shared success philosophy and practice, We place a high priority on the rights and interests of our network partners and front-line couriers. We believe that the implementation of social security coverage is aligned with the objectives of anti-involution policy, as both aim to safeguard front-line workers' interests and promote healthy industry development. We welcome the early implementation of social security policies. In the short term, the rollout of these policies may lead to an increase in per parcel cost. However, from a long-term perspective, establishing a more stable and secured employment system will enhance network cohesiveness, reduce workforce turnover, and further solidify the quality of our last mile services. As an industry leader, ZTO will continue to lead by example to promote the sector's compliance, high-quality development. Going forward, if more specific Social Security implementation measures are introduced, we will proactively respond to the government's call and fully support policy implementation. As we have been previously communicating that our On our consolidated group, our compliance level with the Social Security is much higher. Yes, indeed, at the outlets level, there are various different practices. So the major impact perhaps will come from the network partners, and we will be supportive in helping our network partner to become compliant. and also help them reducing cost as what we are currently implementing is indeed will generating results to help them coping with any additional cost increases coming from the social security policies implementation. Hope that answers your question.

Okay, thank you.

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

Thanks everybody for joining us for the call again today. And we have generated positive results and performance going forward are continuously relying on our strategy of a balanced approach with quality first, and scale and volume improvements with reasonable level of profit that is equitably shared among our brand participants. So going forward, we look forward to speaking with you again, and thanks again for your support and attention.

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