ZTO Express (Cayman) - Q2 2023

Transcript

Operator (participant)

Good day and welcome to the ZTO Express second quarter 2023 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 Li, Company Secretary. Please go ahead.

Sophie Li (Company Secretary)

Thank you operator. 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. Meisong Lai, Chairman and Chief Executive Officer, and Mrs. Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Mrs.

Yan, 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 statements as a result of new information, future events, or otherwise, except as required under law. It is now my pleasure to introduce Mr.

Meisong Lai. Mr. Lai will read through his prepared remarks in their entirety in Chinese before I translate for him in English. 赖 总 请 。

Meisong Lai (Chairman and CEO)

Hello, everyone. Thank you for attending today's conference call. In 2023 Q2, ZTO, while maintaining high-quality service levels, achieved business volume of 7.68 billion pieces, a 23.8% year-over-year increase. Market share further expanded to 23.5% to 23.5%. At the same time, we further optimized revenue structure and strengthened process refinement management, thereby improving overall operating efficiency. Operating benefits realized CNY 2.53 billion in Adjusted Net Income, a 43.9% year-over-year increase. Relative to the low base affected by the COVID-19 epidemic in the same period last year, the express delivery industry's overall business volume in this year's Q2 increased 20.9% year-over-year. Among industry brands, due to differing emphasis on scale versus profit, there are differences in incremental competition strategies.

What ZTO has consistently pursued is continuous healthy development, focusing on realization of long-term goals and shaping and consolidation of our own competitive advantages. In Q2, we steadily advanced and implemented various specific tasks, thereby achieving good performance. First, we strengthened team construction and talent cultivation mechanisms. Through systematic assessments, we implemented survival of the fittest and rapid iteration. New talent in provincial and municipal management district operation teams is gradually growing stronger. Under an atmosphere of emulation, learning, catching up, and surpassing, management personnel's combat effectiveness has been further elevated.

Second, results from our cost optimization and efficiency enhancement were significant, exceeding expectations. In Q2, we continued implementing standardized operations, further refined the quantitative assessment system, and enhanced process data tracking and accountability capabilities, thereby more effectively identifying anomalies, conducting targeted optimizations and rectifications, and rapidly resolving problems. Third, we further deepened and promoted application of volume-cost-profit tools, combed through the rationality of revenue pricing and cost allocation between sorting and transportation centers and outlets, effectively elevating full-network profitability levels, and further widening the industry-leading gap.

In the first half of 2023, accompanying recovery of China's economy in the post-COVID-19 era, the express delivery industry achieved relatively rapid growth. Although low-price competition still exists, long-term pattern evolution in the express delivery industry is becoming increasingly clear. Market share brought by low-price competition is often unsustainable; many times, such perceptions do not last long. We clearly recognize that high-quality service, stable networks, and efficient operations are the fundamentals for express delivery enterprises to grow big and strong. ZTO's competition strategy is offense and defense in balance, grasping the bottom line, focusing on ourselves, and positioning for the long term. We will proceed according to our own development rhythm, methodically strengthening competitive barriers. On the foundation of safe operations, we will continuously and deeply advance the following four key tasks....

Sophie Li (Company Secretary)

第一，提高服务能力，围绕全链路时效的提升，关注每个运营环节的操作规范性和系统流畅性，加速执行能力的部署，减少分拨频次，改善分拨品质。第二，加快到家到店落实，引导和督导网点，将一手价格全授权到前端快递员手中，激励及时揽派，增加闪送比例，提升网点和业务员的收益。第三，针对一定规模以上的网点，在基础设施、安全合规、服务质量、信息化管理等方面充分赋能，提升网点的经营质量和执行末端的能力。第四，加速末端驿站的布局，将兔喜生活家打造成服务于全行业的公共平台，降低行业揽派成本，提升上门服务能力，强化与消费者的链接。宏观经济发展的大趋势一定是向上的。周期性的波动给长期主义者带来了深挖自身潜力和打造持续定力的机会。中国快递行业的发展以及竞争格局的演变正处于关键期。我们很清楚自己具备什么优势，能做什么，需要改变什么。创新和企业家精神伴随着我们共建共享的企业文化，将鞭策我们以利他和利社会为动力，借助科技的赋能，提升经营效益，塑造绝对的竞争优势，解答好日均单量的课题，迎接快递人的同利事的到来。接下来我们请严总给大家介绍中通的财务业绩和状况。谢谢。

Hello everyone, thank you for joining today's conference call. In the second quarter of 2023, while maintaining a high level of service quality, ZTO grew its volume by 23.8% year-over-year with a total of 7.68 billion parcels, further expanding our market share to 23.5%. Meanwhile, through enhanced revenue structure and process management, we improved overall operational efficiency and achieved an adjusted net profit of CNY 2.53 billion, representing a 43.9% year-over-year growth. Relative to a pandemic-affected low base of last year, the express delivery industry's overall parcel volume grew 20.9% in the second quarter of this year. Depending on varied priorities for scale and profit, each brand implemented different competitive strategies. ZTO has consistently pursued sustainable, profitable growth, focusing on long-term goals and competitive advantages.

In the second quarter, we executed the following key tasks initiatives, which helped the generating solid performance results. First, we revamped the talent reserve program, and through systematic evaluation, quickly replaced those who could not keep up. With a strong talent pool and pipeline build up under a compete, emulate, surpass atmosphere, our team of provision managers are becoming younger, yet more prepared to take on greater challenges. Second, we exceeded expectations on cost optimization. In the second quarter, we continued to implement operating process standardization and further refine our evaluation matrix to be more detailed and quantifiable. Our ability to correlate process data to specific behavior of a workstation or individual task operator improved. This enabled us to flag anomalies promptly and effectively rectify problems with precision. Third, we refined the value cost to profit tools and further the implementation across the operational network.

We sort through the methodologies for pricing, revenue, and the cost of sharing between sorting centers and outlets. This effectively enhanced the profitability of our entire network and further widened our industry lead. Benefited from post-pandemic recovery in the industry, in the Chinese economy, the express delivery industry has resumed a healthy growth in the first half of 2023. Despite price-for-volume behaviors that are still present, the evolutionary trend of the industry dynamic is very clear. Market share gains through low price competition is often unsustainable and in many cases lead to more detriments than gains. We are convinced that high quality of services, robust infrastructure, and efficient operations are crucial ingredients to a scaled and strong express delivery enterprise.

ZTO's competitive strategy is to maintain flexibility to be offensive or defensive, locking bottom line and focus on developing our own capabilities from the long run. We will adhere to our very own pace and steadfastly establish and strengthen our competitive barriers. With mindfulness on operational safety, we will keep digging deep trenches in the following four key areas. First, improving service capabilities by focusing on end-to-end timeliness, streamline and improve operational efficiencies through process standardization, establish more direct linkage among sorting centers, outlets, and last-mile posts, ultimately reducing sortation frequency. Second, expediting the implementation of last-mile initiatives and encourage network partners to pass on market pricing to couriers so as to incentivize responsiveness for pickup and delivery, increase non-e-commerce package volume, hence enhance the profitability of outlets and couriers.

Third, for those outlets whose volume exceeds certain threshold, we will increase attention and managerial support to help developing infrastructure, implementing safety measures, enhancing service quality, and digitizing information and management, improving operational efficiencies and last-mile connectivity. Fourth, expanding last-mile presence and transforming Tuxi Life Plus into a shared solution for every industry player to reduce last-mile costs, enhance in-person service capability and connection with consumers. Long-term microeconomic development will undoubtedly trend upward, and cyclical fluctuation only provide opportunities for long-term value seekers to explore potential and build endurance. The competitiveness, the competitive dynamics of Chinese express delivery industry have entered into a critical development stage. We are fully aware of our own strengths and advantages. We know what we can do and understand what needs to change. Innovation and entrepreneurial spirit are embedded in our shared success culture, propelling us to create value first for others and the society.

Leveraging the power of technology, we aim to enhance operational efficiency, forge a distinct set of competitive advantages, formulate solutions for over 100 million a day parcel volume, and usher in payback and the prosperity for express delivery participants and investors. With that, let's welcome Ms. Yan to review our financials.

Huiping Yan (CFO)

Thank you, Chairman Lai. Hello to everyone on the call. As I go through our financials, please note that unless specifically mentioned, all numbers quoted are in RMB, and percentage changes refer to year-over-year comparison. Detailed information on our financial performance, unit economics, and cash flow are posted on our website, and I'll go through some of the highlights here. In the second quarter, ZTO maintained profitable growth, thanks to sound execution of our consistent corporate strategies. Our parcel volume increased 23.8% to 7.7 billion, growing the quarterly market share by 0.5 points to 23.5%. The adjusted net income grew 43.9% to CNY 2.5 billion. Total revenue increased 12.5% to CNY 9.7 billion.

ASP for the core express delivery business decreased 7.8% or $0.10, mainly driven by lower average weight per parcel, increases in volume incentives, and a mix shift impact from decrease in KA volume, whose revenue are recorded to include delivery fees. Total cost of revenue was CNY 6.4 billion, which decreased 0.3%. Combined unit cost of sorting and transportation decreased 15.7% or $0.12. Specifically, line-haul transportation cost per parcel decreased 14.7% to $0.42, mainly attributable to better economies of scale, optimized line-haul route planning, improved load rate, and decreased fuel costs. Unit sorting costs decreased 17.4% to $0.25, driven by scale leverage, increased level of automation, improved standardization in operating procedures, and optimized performance evaluation system.

Gross profit increased 50.0% to CNY 3.3 billion as a result of increased revenue and cost productivity gain. Gross profit margin rate increased 8.5 points to 33.9%. SG&A expenses, excluding share-based compensation as a percentage of revenue, dropped 0.1 point to 5.3%, demonstrating a healthy corporate cost structure and leverage. Income from operations increased 45.0% to CNY 2.9 billion, and associated margins grew 6.6 points to 29.6%. Operating cash flow was CNY 3.76 billion for the quarter, and EBITDA was CNY 3.8 billion. Capital expenditure totaled CNY 2.2 billion for the quarter, and we are anticipating annual CapEx to be in the range of CNY 6.5 billion-CNY 7.5 billion.

We are on track to achieve another year of free cash flow. Now moving on to guidance. Taking into consideration the current market condition and our operating situation, the company reiterates that its annual volume guidance to be in the range of 29.27 billion to 30.24 billion, representing a 20% to 24% increase year-over-year. Relative to the entire industry performance, the company remain committed to achieve at least 1.5 percentage point increase in volume market share for the year. These above estimates represent management's current view and preliminary assessment, which are subject to change. Now, this concludes our prepared remarks. Operator, please open the lines for questions. Thank you.

Operator (participant)

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. In the interest of time, we ask that you please limit yourself to two questions. Once again, that was star then one to ask a question, and at this time we will pause momentarily to assemble the roster. And our first question will come from Ronald Keung of Goldman Sachs. Please go ahead.

Ronald Keung (Managing Director)

谢谢赖总、严总、Sophie，也恭喜这个非常稳健的利润增速，而且这个market share也提高了。那赖总你刚才说到这个快递行业到了一个关键期，然后我们也看到了这个行业有一些二梯队的玩家也做了一些比较大的价格下降，然后我们怎么判断这一次是一个短期的有一些小型的价格战，小玩家拿份额，是一个短期的还是一个会再长期一些的？然后我们怎么看进入四季度这个，这一次的双十一peak season我们的这个价格的趋势。然后第二呢，刚才王宇腾也分享了这个我们的端对端的这些举措，是来进一步缩短这个整个时间，这个delivery time。那想知道我们现在这个端对端的时间跟一些其他玩家的一个差距或者优势有多大，然后未来除了这个端对端的时间，还有哪些会觉得我们可以比同行再有更多的这些特殊的服务的这些提升来继续扩大我们的这个优势。那我翻译一下。

Thank you management, very quickly on...

Management talk about the express industry reaching a critical point. Well, we have delivered very strong profit growth while increasing market share, but we have seen some of the smaller players starting to cut prices and become more aggressive. So do we see this as a temporary measure, kind of act from these smaller players? Will this be kind of extending into the fourth quarter peak season this year? And how do we assess this round of price cuts from smaller players? Second is about service quality and our end-to-end delivery time. Could you share some of the metrics there, and compare with peers, and how do we plan to widen our differentiation? Not just from end-to-end time, but any value-added services or anything that we're planning to maintain our service leadership. Thank you.

Meisong Lai (Chairman and CEO)

谢谢你的提问啊。这个你的第一个问题就是这个价格趋势的问题。一般来讲呢，快递行业到九月份以后呢，它的体量会增长，大概呢，就是九月份跟七八月份会增长个5%，啊，九月、十月会增长百分之...

跟七八月比，就会有10%以内的这个增长，十一月份呢，还会增长。所以每户人家的产能呢，那个时候呢，就是富余的产能会得到充分的释放。啊，这个我的判断呢，就是价格还是会趋稳的。啊，这个确实呢，这个每年呢，这个七八月份这个价格，快递价格都是往下的。那中通的一直呢，就是保持我们的策略，就是这个盈利、市场份额跟服务的这三个平衡做好。那我们的原则呢，就是亏本快件不做。其实今年呢，我们也是这个策略，就是，五六月份以后呢，我们的政策呢，是延续三四月份的政策，没有做太大的调整。第二个呢，就是中通如何保持这个优势啊，这个责任单到单，你刚才提到，那我们一直认为呢，这个快递的优势其实它是两个方面，一个方面就是你的服务品质啊，时效要优先，你的服务能力要强，服务要就同样的价格啊，你的服务水平要比人家高。那我们呢，从两方面呢在做这个工作。第一呢，在转运环节，就转运环节，我们每个环节啊，尽可能地就是，啊，做到-...

我们的时效更优。第二，我们在转运环节，做三网叠加，过去，中通跟同行的优势主要体现在中心对中心的优势，就始发中心、目的地中心的这个转移优势。那我们现在逐步，就是始发中心到，跟目的地站点，或者是始发站点跟目的地中心链接，减少这个分拨的频次。那我们现在，其实一直致力于这方面的能力建设，就是帮助站点这个产能的建设，这个作业场地的这个能力提升，以及这个设备的提升。那我们现在，就是尽可能地优化路由的线路，来减少分拨频次，这样，时效会更快，成本会更低。这个第二张网，就是始发站点跟目的地中心链接，或者是始发中心跟目的地站点链接。因为中通今天的体量，有些地区城市已经达到了20万单左右派件，那我们部分中心，比如像广州，像清华，它的占比在10%左右，它能够做到择令。那如果这张网起来以后，第三张网就是始发站点跟目的地站点的链接，就其实它是0次中转。我们现在，是2次中转为主，2次分拨，那么这个有超过2次的。那未来，我们要逐渐增加这个1次分拨的频次和0次分拨，就站点跟站点，这个优势会逐步体现起来。第二个，我们更加关注，就是这个业务员的获得感和这个，增加他的收入，增加他的获得感和归属感。责任业务员，一手价格全给到业务员，激发他的内生动力。第二个，就是我们加强末端的建设，就是现在我们投入的设备，其实能够做到去站点，只送，只分只练，这样，就是减少了业务员的劳动强度。我们现在，过去的模式，就是你的业务员是要到站点来拿件分件的，那我们把它解放出来，以站点为中心的辐射，让业务员更有时间去提供上门拿收，上门派件的能 力。这个我们还将，因为整个行业，现在就是我们还将赋能整个行业，降低整个行业的成本，这个拿派的成本，同时提供个性化的服务。我相信，这个规模优势跟这个网点的稳健，跟业务员收入的增加，这个能够把这些工作做好的，那一定会，这个优势一定会更加明显。谢谢！

Huiping Yan (CFO)

Thank you very much for your question. First question is really in essence about the trend of the pricing going forward. It is some typical that during a year, around September and October, the pricing will be about 10% higher than August and July. Because of the seasonality of the year, also in November, the price will further increase because the access capacities will then gradually be utilized. The pricing for the market during the second quarter fluctuation, we believe it's more driven by the seasonality.

ZTO has consistently focused on the approach that is balanced across quality of services, volume and market share and profit. Our principle is, eliminating loss making transactions. What we've done differently compared to some of our, competitors, is that we extended our policy from March and April into May and June, instead of making changes to them, so maintained stability, in our entire network. Your second question is relating to linkage.

First of all, we do have systematic plan on improving, first of all, our quality of services and timeliness, because under the same pricing, higher quality of services will attract more volume. What we've done in two aspects in our operational environment is that first, each of the transit linkage, we will push it to its extreme, improving productivity, improving correlation between segments, different segments of our process of sortation, transportation, improving the route planning, and so on and so forth. Those are the typical initiatives that we have implemented all along. And then the second area, which is we have referred to in the past, called tri-layer throughput. In the past, our advantage is a better connection between the outlets and our sortation centers. Going forward, and then really starting, these-...

Couple of years, we've been slowly but surely building the connectivity between origination outlets to the destination sorting center and also, among the outlets from origination and destination, so as to develop those three, distinct model of sortation, because the ultimate goal is to reduce the number of sortation. What we've done recently is fo cusing more on helping our outlets to improve their processing capability, including equipment, automation, and also their, area of work, their work areas, so as to ensure the transportation of larger trucks can go in and out to improve the linkage, because they then, with certain level of volume in a group of outlets, they are capable of sending the packages directly, bypassing the origination center to destination center, or in some cases, i.e., the third layer, is to go from origination outlet directly to the destination outlet.

Hence, this is zero sortation. We have more and more of our outlets or regions having higher volume, which makes it possible for the Tri-layer Throughput Model. For example, in Canton and Yiwu, they represent about 10% of our total volume, and many of their outlets having over 200,000 packages a day. With those scale condition or scale prerequisites, we are in the process of establishing the second and the third layer of transportation and sortation throughput. Nowadays, we have on average of two sortations, a little over sortations, which means some of the packages will go through sorting centers or two sorting centers. Going forward, our focus is to increase one sortation and also zero sortation. The level of decrease in the total sortation will allow us to not only improve timeliness, but also reduce cost.

Aside from developing our own capability and operation, we are also focusing on the second area, which is the last-mile development and also focusing on our couriers. The couriers are going to be incentivized because our outlets will pass through front-end market price to our couriers so as to encourage them to pick up and deliver more on time and more responsively, and also increase non-e-commerce packages. To do that, as part of the supplement, we also work with our last-mile presence development. Typically, the packages will go to sortation centers, and the couriers would have to spend time and go pick up those packages from the sortation centers.

With our scale and redesigned process in our operations in sortation, we are able to direct packages directly over to our last-mile locations or post, which will save plenty of time for the couriers to mainly focusing on delivery. So their ability and their services to provide individualized attention to those customers who need door-to-door on door-to-door delivery will be greatly improved. And this will not only help our couriers, but will also help the entire industry in reducing last-mile cost. As volume becomes higher going forward, which is a definite future, we do believe helping the whole industry as a solution with our last-mile presence will most certainly help the entire industry's healthy growth.

To sum it all, scale, stability of outlets, and our couriers' improvements in their earnings, as well as our outlets become more stable because they are also earning more. These are the three focus areas for us to develop differentiated, competitive advantage going forward. Hope that answers your question.

Ronald Keung (Managing Director)

Thank you.

Speaker 6

...

Thank you, Meisong Lai, Huiping Yan, Sophie Li. Thank you for taking my question. Congratulations to the company. The second quarter continued to achieve relatively strong performance. I have two small questions, one about competition, the other about costs. The question about competition is, I am also very happy to hear that Meisong Lai just mentioned our competition strategy in May and June actually had no too much change compared to March to April, and compared to our peers, actually still relatively stable. Then we actually also saw the second quarter actually roughly achieved 0.5 percentage points of market share expansion.

Considering the company mentioned the full year 1.5 percentage points of market share expansion target is unchanged, I want to ask, that is, this exactly means in the second half year we in share competition will be more aggressive, or we feel this opponent's, this competition opponent's possibly will in peak season have some this capacity problem, cause them possibly automatically drop share. At the same time Meisong Lai also in just now this beginning part mentioned we will hold the bottom line. I just want to ask our bottom line is what? If entire industry competition than imagine more intense, our this, our bottom line exactly is share or profit? If in these two certainly have some trade-offs.

This is the first question, then the second question is about costs, that is we see actually second quarter cost decline still very significant, far higher than we in last conference mentioned roughly 5 to 7 points of cost decline. Want to ask management, outlook a bit second half year a cost trend, as well as this next year and year after a cost, unit cost decline a trend.

Let me translate for myself. Thank you very much for taking my question, and congratulations on very solid second quarter results, despite a very aggressive pricing competition in the industry.

I have two questions. The first question is about competition. Very glad to hear that the company's strategy has not changed in the second quarter versus the first quarter to maintain a stable pricing compared with some very aggressive competition from our peers. We noticed that in the second quarter, the market share gain of the company was 0.5 percentage point on a year-on-year basis. Considering a management mentioned the target of 1.5 percentage point year-on-year market share gain, our target remains unchanged. Does that mean we will be more aggressive in market share competition in the second half of this year?

Or it is because we think, because of the utilization issue, some of the peers may lose market share, because they don't have the handling capacity. And also, Mr. Lai mentioned earlier that we will lock in the bottom line. So what's the bottom line of the competition strategy? If the market, the industry competition becomes more aggressive than expected. And the second question is about cost. So, very glad to see the second quarter unit cost drop was much significant than expected. So at the earlier meeting, management guided around 5% to 7% drop in unit cost for the full year. So, considering the second quarter, we have achieved better than that. What's the outlook for the second half of this year in terms of unit profit?

Also, what's the outlook for the next two years?

Meisong Lai (Chairman and CEO)

谢谢，谢谢您的提问。这个，您刚才提到两个问题，一个是竞争，一个成本的问题。确实这个第二季度以来，这个市场的价格呢，竞争还是非常强劲的。我们看到，这个我们的第二季度的财报，其实我们的单票收入是下降的。那其实我前面讲我们是延续了三四月份的竞争策略，那么从另外一个角度来讲呢，就是我们的单票收入下降，其实我们更多地让利了到我们的收派两端，这个是第一个。第二个呢，就是没有达到，比如说第二季度没有增长1.5个百分点，只增长了0.5个百分点。如果因为中通今天呢，在行业里面，它，这个体量是比较大的，那关注度也比较大，影响力也比较大。那我们从延续，年初制定的政策，没有去，低价或者是，更多的去比如说派费的调整。其实如果我们从另外一个角度来讲，如果我们调整派费，有可能我们的体量，再增长多一个点，这个是没有问题的。是从两个方面去考虑：第一呢，就是中通要做行业价格的坚定维护者，这个亏本快递不做。第二呢，也是，我们自己本身运能整理出来，大部分这个快递的，这个创业者和就业者呢，其实，这个如果价格过低，对整个行业的发展，这个稳定性。...

年的趋势呢，我们认为，因为一般来讲呢，七八月份的体量比五六月份都要低，那九月到十二月以后呢，体量会逐渐恢复，就是进入全年的高峰期。所以这个富余的产能呢，会得到充分的利用。所以大概率就是每户，每家公司，它会根据自己的资源优势，这个设备啊，人员啊，场地啊，车辆的这个匹配啊，制定这个价格。那中通呢，今年也是做了一些调整，就是在这个方面，就是我们按照流量流向收费，所以对这个收入的下降呢，也是有一些关联。啊这个下半年的竞争，我认为呢，就是这个会减缓，然后价格会逐步得到修复乃至回升。呃，总体来讲呢，这个份额的增长，我们认为，中通还是有机会的，就是力争达到。这是第一个问题。第二个成本呢，确实我们这个成本下降，这个效益还是非常的明显，很激动。那主要的原因呢，就是我们找到问题点，第二个呢，就是我前面也介绍了，我们的执行程度呢更加的高，包括站点交界，就近交界，就是减少分拨次数，距离拉大，这个跟全链路的路由规划，跟成本是有关联的。那下半年呢，我们还是有信心，就是这个成本下降的空间还是有的。那主要就我前面也介绍了，就是我们会更加执行，减少分拨次数。现在中通大概是2.09次的平均分拨次数，一次分拨呢，其实要增加CNY 0.25。那么如果我们全网减少0.1次分拨，就是CNY 0.02。那如果是减少0.2次，就是CNY 0.05。所以中通呢有规模优势，然后我们把每个环节管控好，我们的成本优势呢，还是会继续领先。谢谢。

Huiping Yan (CFO)

Thank you very much for your questions. First question is really about the price competition. In fact, surely we have observed that in during the second quarter, the price fluctuation becomes extremely volatile. From one perspective that we have from what we have done is, as I described earlier, we didn't change our pricing from May and June, well, from March and April, all the way throughout to May and June. Because indeed, as you look at our decrease in ASP, in essence, aside from the objective reasons, we subjectively have allocated or given profit to the pickup and the delivery end.

Our market share did only increase 0.5 points because we do believe that in the longer term, ZTO with the largest scale and strongest competitive advantage, we are also taking on the role of a stable agent to ensure that the entire industry is stable, and especially during the economic recovery. From our personal sentiment, we are all coming from the same place. We come from the villages, and we all know that we are not trying to create detriments to anyone. We're just simply using up the excess capacity. So, if we take on the price actions severely, it would, because of our scale and influence, will it really impact the entire industry, which is really not what we intend to do.

So we are hopeful that, typically starting in September, the volume will recover and the whole industry will enter into a higher season. Although, its installed base and capacity will be utilized, and, each of the players will become more sensible in matching their capacity and resources to their pricing strategies. One thing we've done differently now is that ZTO make pricing decisions based on the direction of our routes, which is more granular and we have more visibility. In other way, we have much greater flexibility in precision, in precision, in making appropriate price decision. In the second half of the year, we are hopeful that the whole pricing trend will stabilize and the price will return, most likely.

With regards to the 1.5 points target, we do believe there are still opportunities for us, and then we will strive to achieve our commitment. Second question on the cost side. What we've done is, aside from what we described earlier, to provide better-...

Operational efficiency through some of the initiatives that we have implemented. We are also improving the direct linkage, so when we are able to quickly find issues and solve problems, we are becoming much more efficient on the cost side. Some of the things that we are also doing, mentioned earlier is our outlets are gradually being rerouted to pick up or to drop off to the nearest center in their vicinity, instead of just geographically or organized by provinces. So the whole entire end-to-end timeliness is improving.

This will certainly impact the cost. We do believe there are still more room for us to gain on cost productivity. As I mentioned earlier, currently we're about 2.09 times of sortation throughout the entire network, and each sortation will cost probably about approximately about $0.25. So if we reduce the sortation by 0.1, that is $0.025 of cost productivity gain, and we intend to further improve the linkage and reduce the sortation. Hence, as I mentioned earlier, the Tri-layer Throughput Model based on our scale, will allow us to gain much greater cost productivity going forward. Thank you.

Operator (participant)

Thank you, Mr. Lai, Mr. Yan. The next question comes from Thomas Chong of Jefferies. Please go ahead.

Thomas Chong (Regional Head of Internet and Media)

早上好，管理层，非常感谢接受我的提问。我的问题是关于我们长期的一个发展的。想请问一下管理层，我们怎么看我们长期的一个 market share，就是七，市场份额的一个占比。然后从我们的 product mix 的角度来说，我们会怎么去看，在最近经济的不明朗的情况下，大家在那个 parcel 的重量方面会不会有什么改变？

Thanks management for taking my questions. I have two questions. The first question is about our long term market share expectations. Given that we have talked about the 1.5% market share gain, just want to see how our market share will be trending in the long run. My second question is really about the parcel mix. Given that we are seeing some changes in the consumer behavior, given the macro backdrop, are we seeing the weight of the parcel is having some changes in terms of the heavy weight and the light weight parcel? How will that affect the cost parcel trend? Thank you.

Meisong Lai (Chairman and CEO)

谢谢，谢谢你的提问啊，这个你是...

两个问题，一个就是长期竞争的策略，第二个就是这个产品结构的问题。中通呢，其实一直保持我们的定力，就是专注做好自身的工作。我们认为呢，中国快递，这个你有成本优势，你服务质量好，你有，这个有规模，你一定会获取越来越多的市场份额。因为快递呢，它这个，是靠这个服务，跟价格决定，这个，简单讲就是效率导向，同样的价格，你服务比人家好，你一定会赢得更多的用户的信任。同样啊，这个价格，你服务比人家好，那你一定会有越来越多的市场份额。其实市场是公平的，那中通呢，一直非常注重两件事情，一个是份额、利润跟服务的，这个优势，这个做好这三个平衡。所以我们从上市以来，其实大家去看，就是我们这三条线一直是非常稳健的，我们不会说，这个牺牲服务质量要去市场份额，或者是，牺牲利润，用低价要去市场份额，我们一定是把我们自己的工作做好，以我们的服务，以我们的性价比去做市场份额。第二个呢，快递网络它是全程全网，啊，光靠总部能力强也不行，所以业务员，这个战略跟总部的利益分配要平衡，其实每个环节要赚钱，那大家才有信心。所以啊，我们认为呢，中通过去一路走来，其实我们都非常注重这两大类指标的，这个稳定性。这个我们相信呢，啊，中国快递，一定会诞生，啊，这个市场份额肯定-...

越来越轻松。啊，这个趋势是我自己判断是越来越明显，就是综合实力跟这个啊服务能力的提升。服务质量好，啊，有成本优势，那你的规模效益会显现出来，市场份额会越来越多。啊，这个是第一个。第二个呢，就是产品结构的问题呢，我们会部分区域，就是中通的策略，以前呢我们按照区域收费，就一区、二区、三区、四区。现在呢我们按照流量流向收费，就是产粮区的地方，有可能呢我们的产品结构会偏轻。那么非产粮区的，比如说西南、西北、东北，有可能在农产品上行，啊，这个产品会更多，那它的我们会根据，啊我们的资源配置去制定这个，收费的政策，所以让，哈，资源的效率最大化。这个，啊，车辆的装载力啊，我们的，啊，产地的使用的效率，啊都会...

场地设备使用的效率，都会做到更加的精致。总体来讲呢，就是但是今年二季度，其实我们的重量是偏轻的，那这个产品结构，这个包裹的重量是下降的。那整个行业呢，其实我们也看到，这个特别是今年，所有的有三到二季度，其实这个重量结构都是下降的，证明就是这个越来越多消费者，就这个小件在网上，或者是从通过电商在采购。谢谢！

Huiping Yan (CFO)

Thank you for your question. Your question really relates to the competitive strategy. So on that, ZTO has always focused on building our own competitive strength and, remain stable and profitable, or remain focused on stable and sustainable, profitable growth. The Chinese express delivery industry, it has been apparent that when you have cost advantage, you have scale, and you have high level of quality of services, you will attract greater market share. In essence, express delivery is about value. It's a value proposition. With a level of high quality of services, customers will gravitate towards those who have a high efficiency, or low cost, or a reasonable cost. The market is fair.

In the past, we have demonstrated, and it's evident, that when we focus on all three of our corporate focus, i.e., quality, services, market share, as well as our own profitable development, our market share continually improve and increase. We do believe, more importantly, for an entire network to be healthy and growing, especially because in China, the franchised model we have been in all throughout our years, focusing closely on the equitable allocation of courier, outlet, and our company as a brand operator. Each of the players need to focus on fair allocation and sustainable growth going forward. We believe if you reference to the developed market in China, there will be concentrated market share in a few players, and this has been the trend.

We've been seeing the concentration in our market share in the past several years. As long as you have a high quality of services, you are also building up scale and efficiency and differentiated competitive advantage, we believe the longer-term market share concentration will continue to demonstrate itself. Second question relates to the product mix or parcel mix. Indeed, in the second quarter, we have observed that not only just us, including our competitive partners in the space, they also experienced lower parcel average, lower parcel weight. And this is indeed, as you have observed and mentioned, the consumer shopping behavior has been evolving and changing towards more sporadic shopping.

For us, some of our main e-commerce package production regions, the packages will be lighter, yet we believe more of the inland to the north and south, having our regions with more agriculture product coming up, for example, that will be heavier. As we are developing a pricing strategy based on routes, we will match the load rate of our transportation resources and our space operational space and equipment with the sortation center, as well as our network partners, and in that sense, determine what the appropriate pricing needs to be for a different set of product mix going forward.

Operator (participant)

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

Huiping Yan (CFO)

Thank you, everybody, again, for joining us today. Sometimes it takes a step back to take the two steps forward, and we are maintaining our stamina in looking into longer term, and also with our financial resources and our competitive strength, we have much greater flexibility in playing offensive or defensive going forward. Opportunities are ahead for us to look not just at the second half of the year, when volume will increase. We are also looking forward to many years ahead, where we will continue to take a leadership in profitable growth. Thank you again for your continued support, and we look forward to speaking with you soon.

Operator (participant)

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