ZTO Express (Cayman) Inc. Q3 FY2024 earnings call

• In the third quarter of 2024, ZTO maintained leading service quality, with total parcel volume growing 15.9% y-o-y to 8.72 billion and adjusted net profit of CNY 2.39 billion. - Adheres to high-quality development strategy, accelerated product and service differentiation, enhanced brand awareness. - Strengthened operational segment standardization and streamlining, end-to-end timeliness ranked #1 among Tongdas players, customer complaint rates declined. - Partnerships with e-commerce platforms deepened, retail parcels grew over 40% y-o-y. - Revenue structure optimization alleviated price competition pressure, combined with cost efficiency and stable SG&A expense structure, widened lead in per parcel operating profit. - China's express delivery industry saw 20.1% y-o-y growth in Q3, faced mix shift due to low-price e-commerce parcels and weak economy. - Reviewed past few quarters' work, identified needed improvements in duties division, headquarters-provincial management coordination, pricing flexibility, incentive effectiveness, and network policy transparency. - Key improvement tasks: thoroughly review pricing policies, simplify complex policies, optimize coordination mechanism effectiveness, accelerate last-mile IT system deployment, leverage fintech tools to incentivize last-mile responsiveness, systematically focus on capital investment pace.

In the third quarter of 2024, ZTO's total parcel volume reached 8.72 billion, a year-over-year growth of 15.9%. Adjusted net profit was CNY 2.39 billion. The total revenue was CNY 10.7 billion, an increase of 17.6% year-over-year. Total cost of revenue was CNY 7.3 billion, an increase of 15.2% year-over-year. The unit cost for the core express delivery business remained flat at CNY 0.82. Unit cost of line-haul transportation decreased 9.7% to CNY 0.39, and unit sorting costs decreased 6.4% to CNY 0.25. Gross profit increased 23.2% to CNY 3.3 billion, and gross profit margin rate increased 1.4 points to 31.2%. Income from operations increased 17.3% to CNY 2.8 billion. Operating cash flow was CNY 3.1 billion for the quarter, an increase of 5.9%. Adjusted EBITDA was CNY 3.7 billion, an increase of 8.7%. Capital expenditure totaled CNY 1.8 billion, and the annual CapEx is anticipated to be around CNY 6 billion. Retail parcels grew over 40% year-over-year. KA revenue increased, and key KA costs were in line with KA revenue increases.

• The company revises 2024 parcel volume guidance to be in the range of 333 billion to 339 billion, representing 11.6% to 12.3% y-o-y increase. - Guides down annual volume targets based on visibility into the rest of the year due to increasing proportion of low-value e-commerce packages. - Recalibrates focus among service quality, volume, market share, and profit, modifying pricing practices to stimulate high-volume daily average customers to work with the brand, aiming to regain volume growth momentum and expand market share leadership, with earnings quality expected to remain intact.

• Express delivery industry has an expanding proportion of low-price e-commerce parcels, and price sensitivity fueled by weak economy. - Uncertainty of macroeconomic recovery and growth affects higher quality focused growth of the express delivery industry. - Challenge of balancing core values: service quality, scale, operating profit, and interest of franchisee partners. - Complex network policies may affect trust and confidence of network partners.

Q: About the capacity plan for next year and share buybacks.

A: For 2025, focus on balanced approach to service quality, volume, market share, and profit, prioritize regaining volume growth momentum with reasonable profit, simplify policies for better understanding and addressing customer needs, provide autonomy to regional managers for flexibility; for share buybacks, aim to complete the plan as the first choice to return value to shareholders, with buyback rhythm in line with market development and may accelerate.

Q: Impact of Taobao cooperating with JDL on ZTO.

A: Mutual opening of e-commerce and logistics platforms marks a healthy shift, platforms choose cost-effective logistics services, which doesn't have significant impact on ZTO as it's an open platform addressing all service needs from different e-commerce platforms.

Q: About KA customer revenue and logistics parks development.

A: KA business volume in Q3 was 300 million, accounting for ~3.5% of total parcel volume, KA revenue was ~CNY 1.3 billion, y-o-y increase of 120%, mainly due to increase in proportion of platform reverse logistics customers with higher prices; in logistics parks, continue to implement co-locating model to reduce cost and improve timeliness, aiming to become leader in comprehensive logistics industry.