Dingdong (Cayman) Ltd. Q1 FY2022 earnings call

• Prioritized protecting grassroots rights, passing on delivery fee increases to outlets and couriers with supportive measures.
• Raised bars for comprehensive outlet management, fine-tuning the Matrix Model for tier one partner outlets.
• Accelerated digitization initiatives to streamline end-to-end processes and drive effectiveness/efficiencies.
• Improved performance evaluation and reward/reprimand mechanisms, set up user-friendly scorecards during COVID disruption.
• Developed diversified products/services, increased presence in mainstream e-commerce volume with time definite products.
• Sorting centers and service outlets in affected areas gradually resuming operations as COVID under control.

In the first quarter of 2022, ZTO delivered a parcel volume of 5.2 billion, an increase of 16.8%, expanding market share by 1.2 points to 21.6%. Adjusted net income grew 34.9% to RMB1.1 billion. Total revenue increased 22.1% to RMB7.9 billion. ASP for the core express delivery business increased 8.5% or RMB0.11 cents. Total cost of revenue was RMB6.3 billion, increasing 16.9%. Overall unit cost of revenue for the core express delivery business increased by 3.6% or RMB0.04. Line haul transportation costs per parcel decreased by 0.2% to RMB0.57. Units sorting costs increased 6.5% to RMB0.36.

• Revised annual parcel volume projection to RMB24.96 billion to RMB25.86 billion, a 12%-16% year-over-year increase.
• Confident in achieving one percentage point or more increase in market share gain for the year.
• Estimated first half of the year industry growth around 4.5%, Q3 and Q4 expected to grow 10%-13%.

• Omicron infections in early March disrupted industry growth momentum, causing delays and stoppages in express delivery.
• Uncertainties in the pace of recovery from COVID disruptions.

Q: Regarding the situation of the pandemic and monthly parcel volume trends, including thoughts on full months of May, June performance, and Q3/Q4 growth momentum.

A: Huiping Yan responded that May saw recovery especially during the holiday, first half industry growth around 4.5%, Q3 and Q4 expected to grow 10%-13% referencing past rebounds and state post bureau projections.

Q: Difference between 1K business and franchise model and ZTO's plan for end-user behavior change from long haul to short distance.

A: Meisong Lai stated franchise model has advantages in expansion and motivating entrepreneurs, and ZTO will expand capabilities into diversified services to serve different needs.

Q: Market competition landscape, industry ASP for the year, and financial impact of express services VAT waiver.

A: Meisong Lai said industry dynamics will shift to concentrated players, pricing will remain stable with reasonable changes, and VAT waiver impacts involve rate differential due to zero VAT rate for network partners.

Q: E-commerce sales forecast vs parcel volume growth differential, and cost sensitivity to fuel, labor, and operating leverage.

A: Huiping Yan mentioned e-commerce growth trend and ZTO's efforts to address cost increases through automation, digitization, and network framework improvements to enhance efficiencies.