ZTO Express (Cayman) Inc. Q4 FY2024 earnings call

• In the fourth quarter of 2024, ZTO maintained high service quality, with parcel volume and adjusted net income growing. In 2024, the express delivery industry had high growth, but faced challenges like lower-value parcels increasing and pricing pressure. ZTO stayed committed to high-quality growth strategy: accelerated differentiated products/services, deepened e-commerce cooperation, optimized product mix and profitability; strengthened operational standardization and coordination, improved timeliness, reduced loss/damage/complaint rate; empowered network partners to alleviate cost pressures. - In 2024, annual parcel volume grew 12.6%, retail parcels in Q4 grew nearly 50%, reverse parcels doubled. Product mix optimization boosted ASP for core express delivery. Operational cost efficiency and stable SG&A structure led to adjusted annual net income growth. - Entering 2025, focus is on aligning with market dynamics, enhancing service quality, achieving above-industry volume growth, motivating network partners with fair mechanisms, strengthening infrastructure and cost competitiveness, improving market penetration for retail parcels.

In the fourth quarter of 2024, ZTO had a total parcel volume of RMB 9.67 billion, up 11% year-over-year, and achieved an adjusted net income of RMB 2.73 billion, growing 23.4% year-over-year. For the full year 2024, annual parcel volume reached RMB 34 billion, growing 12.6% year-over-year, and adjusted net income was RMB 10.15 billion, increasing by 12.7% year-over-year. The optimization of the product mix brought a $0.08 positive enhancement to ASP for the core express delivery business. The core express delivery business contributed significantly to revenue, with the fourth quarter total revenue at RMB 12.9 billion (+21.7% YOY) and full year at RMB 44 billion (+15.3% YOY).

• Anticipated industry growth in 2025 to be around 15%. - Projected ZTO's parcel volume for 2025 to be in the range of RMB 40.8 billion to RMB 42.2 billion, representing a 20% to 24% increase year-over-year. - 2024 CapEx was RMB 5.9 billion, and 2025 CapEx is estimated to be around RMB 5 billion to RMB 5.5 billion, with intention to achieve free cash flow again.

• Consumption downgrades trend yet to reverse. - Intense price competition remains. - Challenges in maintaining margins due to factors like lower average weight per parcel and price competition.

Q: About priority on volume growth this year above industry, market share progress, impact on pricing and profits, and CapEx plan.

A: Anticipated industry growth in 2025 around 16%, ZTO aims to grow 20%-24% to protect/enlarge market share. First 2 months of 2025 show growth momentum from e-commerce promotions, new business models, government policies. 2024 CapEx was RMB 5.9 billion, 2025 CapEx estimated RMB 5-5.5 billion with intention of free cash flow.

Q: About technology application in logistics, cost savings, revenue expansion, and impact on CapEx.

A: AI technology widely applied in ZTO, like machine vision in sorting, AI-powered customer service tools. Autonomous driving vehicles in commercialization, with cost advantages over manned vehicles. Open attitude towards new technology, collaborating with research firms.

Q: About retail volume growth momentum, competition, UE level, and cost cutting potential.

A: Q4 2024 retail parcel volume strong, 2025 goal is 8.4 million daily average volume. Work in 4 areas to achieve goal. Aim to reduce sortation and transportation combined unit cost by at least $0.03 in 2025. Focus on protecting couriers' rights, 100% social welfare coverage and commercial insurance coverage.