Dingdong (Cayman) Ltd. Q3 FY2021 earnings call

• Focused on profitable volume growth since the second quarter, achieving CNY 1.15 billion net income. - Industry dynamics: Second- and third-tier express delivery companies have exited, top players are separating, competition cooling. - Strategy: Maintain customer service quality, achieve targeted profits, expand market share. - Capacity/infrastructure: Continue capacity investments, support network partners to improve efficiencies, accelerate last-mile post network development. - Profitability/business development: Design network policy for fairness, expand products/services, develop ecosystem businesses like LTL, cloud warehouse. - Operations/network management: Rely on IT for efficiency, deepen network management, support network partners.

In the third quarter of 2021, ZTO completed 5.7 billion parcels, with volume growth of 23.3% to secure a 20.8% market share. Total revenue was CNY 7.4 billion. Net income was CNY 1.15 billion, and on a comparable basis, adjusted net income increased 13.7% year-over-year. The core express delivery business had an ASP decline of 7.2%, cost of revenue increased 10.9%, gross profit rose 12.7% to CNY 1.6 billion, SG&A increased 4.2%, and operating cash flow grew 20.7% to CNY 1.8 billion.

• Revised 2021 parcel volume guidance to 22.2 billion to 22.7 billion, a 30.6% to 33.5% increase. - Expect net income growth to exceed revenue growth. - 2021 adjusted net income to grow no less than 30% y-o-y, 2022 growth no less than or slightly higher than 2021's net income growth.

• Market competition challenges, including M&A deals like J&T and BEST's combination. - E-commerce growth deceleration. - Regulatory risks and potential impact on industry pricing and order.

Q: Regarding the competitive landscape after J&T and BEST M&A deal, would it challenge ZTO's position?

A: The integration of J&T and BEST may present challenges, but it will take time, and top players will leverage their strengths.

Q: How will earnings growth translate into ASP, cost per parcel, and volume trend?

A: ASP decline due to market normal development and volume incentives, but ASP expected to stabilize and increase next year; cost per parcel will benefit from cost efficiencies and tri-layer integrated throughput.

Q: CapEx guidance for next year?

A: Capital spending next year is expected to be no more than CNY 9 billion, possibly reducing.

Q: Impact of VAT super deduction?

A: The super deduction policy will expire at the end of 2021.

Q: Industry pricing trends in 2022?

A: In sync with market, price competition becoming sensible, ASP likely to increase.

Q: Fourth quarter earnings guidance and next year's growth?

A: Fourth quarter earnings growth no less than 30% y-o-y, next year's growth no less than revenue growth, 30% to 35% range.

Q: Market share during double 11 and impact of J&T's acquisition?

A: Double 11 performance was strong, with top metrics; J&T's acquisition disturbed market share pace, but quality-focused growth will help regain share.

Q: Ecosystem development?

A: Ecosystem businesses like international, LTL, cloud warehouse are developing, utilizing infrastructure for comprehensive logistics.

Q: New growth drivers for express industry?

A: Express delivery industry still has growth room, including overseas expansion and rural/country deepening, following government promotion of 2 entrants and 1 exit.