ZTO Express (Cayman) - Earnings Call - Q4 2024

Transcript

Operator (participant)

Please also note today's event is being recorded. I would now like to turn the conference over to Sophie Li, Head of Capital Markets. Please go ahead.

Sophie Li (Head of Investor Relations)

Thank you, Rocco. Hello, everyone, and thank you for joining us today. The company's results and investor relations presentation were released earlier today and are available on the company's IR website at irzto.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 statement 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. Hello, team.

Huiping Yan (CFO)

大家好，感谢各位参加今天的电话会议。2024年四季度，中通继续保持了服务质量领先地位，总体业务量达成96.7亿件，同比增长11%，实现了27.3亿元的调整后净利润，同比增长23.4%。盈利能力持续领跑行业。2024年，快递行业实现了较高速的增长，整体规模超出预期。同时，随着电商平台促销活动的频繁，消费者愈加追求性价比，低客单价线电商的占比持续扩大，物流价格相应承压。面对挑战，中通坚持高质量发展的战略大方向。一方面，加速构建差异化产品与服务的能力，通过与电商平台的合作深化，在提升品牌认知度和客户薪资的同时，优化了产品结构和盈利。另一方面，我们强化自身转运各环节的标准化运营和协同性，进一步提升全链路时效，降低丢失、破损，降低客诉。与此同时，我们持续为完整赋能，提升能力建设，减轻揽派成本压力，提升末单服务品质。2024年，中通全年业务量达到340亿件，同比增长12.6%。其中，四季度的散件业务量增速接近50%，远超电商件整体增速。散件中逆向单量部分同比去年实现了翻倍的增长，产品结构优化给快递核心业务单票收入带来了8分的利好，抵消了单件重量下降和增量激励带来的单价下滑。结合持续优化的运营成本效益和稳定的管理费用优势，中通全年调整后净利润达到101.5亿元，同比增长12.7%。进入2025年，快递行业保持了较高速度的增长趋势，但消费降级的走势尚未逆转，价格竞争依然激烈。面对当前市场环境，我们的核心课题是贴近市场现状，提升服务质量，达成高于行业平均的业务量增速，以合理的成本和利润分配机制，与加盟合作伙伴一起协同夯实网络基建，提升散件渗透力，做大做强主营业务，强化末单优势，提升网点和业务员的盈利水平，提升网络信心和稳定性。具体工作包括：一、狠抓全链路服务质量，细化作业流程，施行数据对标、绩效考核挂钩、内部运营指标和外部平台指数，提升转运环节协同效益和资源最大化利用，优化业态比例，提升整体时效，充分体现品牌优势；二、高效达成业务量目标，充分授权粉丝管理师及时应对市场变化，调配政策资源，统一政策标准，推荐公平透明的同时，分层分解深挖客户资源，匹配特定需求，精准试测，携手收派两端，理清增产量，充分捕捉以量增收的机遇；三、持续优化产品与服务，深化与平台客户的战略合作，整合中通物流生态资源，增强综合物流供应链能力，打磨差异化产品和服务能力，强化品牌认知和客户心智；四、深化末单网络建设工作，明确网格展支撑并提升执行力，落实网点能力建设，到角到边、末单直链和本地生活商业部署等具体举措，降低派件成本，提升散件占比，切实增强网点及业务员的收益，多方触达消费者；五、推进全链路降本增效，平衡收转运派时效保障，与运营成本投入产出，科技赋能数字化运营，基于业务量增长优化路由，专载率及科学规划，产能投入和效能释放。中国民营快递在过往30多年的发展中，经历了规模集中和盈利能力分化的演变，中通能做到后起超越和持续领先并非偶然，无论行业格局如何演变，中通的核心竞争力来自于我们与加盟合作伙伴同建共享的理念，来自执着、专注、坚持的企业家精神，来自我们多年应对变化和挑战时积极学习、快速成长的经验。今天，我们正处于宏观经济与行业发展的关键节点，我们相信中国快递行业和物流生态整体发展的空间是非常广阔的，只要坚持对快递行业的选择，持续专注做好自己，扩大规模领先的优势，量之并举，且与时俱进应对市场变化，持续赋能合作伙伴和快递小哥，从而共同为消费者和客户提供多样化的优质产品与服务。我们有信心，更有实力去达成我们的企业使命，也就是用我们的产品造就更多人的幸福。接下来，我们请严总给大家介绍财务结果和预期规划，谢谢。

Sophie Li (Head of Investor Relations)

Thank you, Chairman Lai. Now let me translate first. Hello, everyone. Thank you for joining today's conference call. In the fourth quarter of 2024, ZTO maintained its high service quality, and with a total parcel volume of 9.67 billion, up 11% year-over-year, we achieved an adjusted net income of RMB 2.73 billion, which grew 23.4% year-over-year, further solidifying our industry-leading profitability. In 2024, the express delivery industry maintained relatively high growth, and the overall scale exceeded expectations. Meanwhile, with frequent e-commerce promotions and consumers' growing price sensitivity, the proportion of lower-value parcels has continued to increase, exerting downward pressure on logistic pricing. Facing challenges, ZTO stays committed to our high-quality growth strategy. On one hand, we accelerated the development of differentiated products and services and deepened cooperation with e-commerce platforms, optimizing product mix as well as profitability while enhancing brand recognition and customer satisfaction.

On another, we strengthened standardization and coordination across operational segments of our transit platform, further improved end-to-end timeliness, reduced the loss and damage and complaint rates. In addition, we ramped up efforts to empower our network partners, enhancing their capabilities to alleviate pickup and delivery cost pressures and improve service quality. For 2024, ZTO's annual parcel volume reached 34 billion, growing 12.6% year-over-year. Notably, the number of retail parcels in the fourth quarter grew nearly 50%, significantly outpacing overall e-commerce parcel growth. Reverse parcels for the full year more than doubled compared to last year. The optimization of our product mix brought by an ASP and positive enhancement to ASP for the core express delivery business, alleviating the impact from lower average weight per parcel and price computation.

Together with continued operational cost efficiency and a stable SG&A structure, ZTO achieved an adjusted annual net income of RMB 10.15 billion, increasing by 12.7% year-over-year. Entering 2025, the express delivery industry has maintained strong growth momentum. However, the trend of consumption downgrade has yet to reverse, and the price competition remains intense. In such a market environment, our core focus is to align closely with market dynamics, enhance service quality, achieve a higher-than-industry average volume growth. Further, we must motivate and enable our network partners with fair cost-bearing and profit-sharing mechanisms to effectively strengthen pickup and delivery infrastructure and cost competitiveness so as to improve market penetration for retail parcels alongside e-commerce volume growth, and ultimately improve earnings of outlets and couriers, enhancing partner network stability.

Key initiatives include the following: first, sink our teeth into end-to-end service quality by refining operational procedures and implementing data benchmarking, aligning performance with internal metrics and external indicators to optimize transit efficiency and resource utilization, improved first-hour delivery ratio while boosting overall timeliness and reinforcing brand awareness. Second, effectively achieve mission-critical volume targets by granting full autonomy to regional management teams to stay lock-step with market changes with efficient resources, ensuring fair and transparent network policies for all and adopting tiered approaches to tap into new customers' potentials. Joint efforts by pickup and delivery partners to effectively target incremental markets can capture volume-driven growth opportunities. Third, further products and services enhancement by strengthening strategic partnerships with e-commerce platforms, leveraging ZTO's integrated ecosystem resources to build comprehensive supply chain capabilities, refining differentiated products to enhance brand recognition and cultivate customer loyalty. Fourth, improve last-mile network expansion and penetration by clearly defining responsibilities of sectional coordinators to effectively execute initiatives such as profit-sharing sufficiently to incentivize couriers to service retail parcels. Establish direct linkage between outlet and last-mile post. Integrate commercial opportunities into local living.

These initiatives will help to reduce last-mile costs, increase retail volume, improve profitability for outlets and couriers, and expand consumer reach through multiple channels. Last but not least, improve end-to-end timeliness and operating efficiency by implementing technology and data-driven tools to optimize route planning, load rate, and in-time capacity investments or upgrades. Over the past three decades, China's express delivery industry, represented largely by private enterprises, has evolved through scale expansion and concentration as well as profitability divergence. ZTO's rise from the latecomer follower to a consistent leader is not a coincidence. Regardless of how the industry landscape has shifted, ZTO's core competitiveness stems from our shared success philosophy so that our partners can also win.

Our entrepreneurial spirit of dedication, perseverance, and focus, as well as our proven ability to quickly adapt and grow through challenges and adversities, today we stand at a critical junction of macroeconomic and industry development. We firmly believe that China's express delivery industry and its broader logistic market hold immense growth prospects. By staying committed to our focus on the industry and being our best, striving for operational excellence, and expanding our scale leadership with healthy quality of earnings in sync with market dynamics, and stand behind our network partners, together, we are confident and well-equipped to achieve our mission, which is to bring happiness to more people through our services. Next, let's welcome our CFO, Ms. Yan, to present the financials results and the future plans.

Huiping Yan (CFO)

Thank you, Chairman Lai, and thank you, Sophie. Hello to everyone on the call. As I go through our financials, please note that as I specifically mentioned, all numbers quoted are in RMB, and percentage changes refer to year-over-year comparisons. Detailed financial information, performances in economics, and cash flow are posted on our website, and I'll go through some of the highlights here. We adhered to the principle of profitable growth and continued to improve the quality of services and customer satisfaction. We attained 11% parcel growth to reach 9.7 billion for the fourth quarter and 12.6% or 34 billion for the year. Adjusted net income grew 23.4% to RMB 2.7 billion and 12.7% to RMB 10.2 billion for the quarter and the year respectively. Total revenue increased 21.7% to RMB 12.9 billion for Q4 and 15.3% to RMB 44 billion for the year.

ASP for the core express delivery business increased 10.3% or RMB 0.13 for Q4 and 2.7% or RMB 0.04 for the year. As the impact of decline in average weight per parcel and increase in incremental volume incentives were offset by the positive impact of the volume increase in retail parcels, the total cost of revenue was RMB 9.2 billion and RMB 30.6 billion for Q4 and the year respectively, which increased 22.3% for Q4 and 14.2% for the year. Overall unit cost for the core express delivery business increased 11.1% to RMB 0.93 for Q4 and 1.9% to RMB 0.87 for the year. Combined unit cost of sorting and transportation decreased 6.5% or RMB 0.06 for Q4, and for the year, it was 6% or RMB 0.04, benefiting largely from economies of scale.

Specifically, unit cost of line-haul transportation decreased 11.1% to RMB 0.40 for Q4 and decreased 8.7% to RMB 0.41 for the year, driven by more effective route planning in conjunction with improvements in fleet operations. Unit sorting cost was flat for Q4 and 2024 at RMB 0.26 and RMB 0.27 respectively. While improvements in automation and labor efficiency contributed to cost savings, additional costs were incurred for sorting activities conducted on behalf of franchise partners. Unit KA cost increased RMB 0.15 for the Q4 and RMB 0.07 for the year, in line with KA revenue increase driven by significant volume increases in retail and, more specifically, reverse parcels. Gross profit increased 20.2% to RMB 3.8 billion for Q4 and increased 17.6% to RMB 13.7 billion for 2024. Gross profit margin rate decreased 0.4 percentage points to 29.1% and increased 0.6 percentage points to 31% for the quarter and the year respectively.

SG&A, excluding SBC, decreased 7.3% to RMB 649 million for Q4 and increased 9.3% to RMB 2.4 billion for the year. SG&A expenses, excluding SBC, as a percentage of revenue declined to 5% for Q4 and 5.4% for the year, reflecting strong corporate cost efficiency. Income from operations increased 25.3% to RMB 3.5 billion for Q4 and increased 17.7% to RMB 11.8 billion for the year. Associated margin grew 0.8 percentage points to 26.7% and 0.6 percentage points to 26.6% for the year. Operating cash flow was RMB 2.8 billion for the quarter and RMB 11.4 billion for the year, representing decreases of 28.5% and 14.5% respectively.

This decline was primarily due to, one, a one-time refund of franchise deposits totaling RMB 1.2 billion under our new business policy to ease liquidity pressure of franchisees who, in the past, must make certain deposits with waybill purchases and then receive refund upon proper delivery of the package; two, higher advances for reverse logistic operations based on the terms customary with platform operators; three, tightening VAT refund policies; and four, a bigger portion of cash management products accounted under long-term financial investments where associated interest income is recognized over a term longer than a year upon maturity. Our adjusted EBITDA for Q4 and 2024 was RMB 4.6 billion and RMB 16.4 billion respectively. Capital expenditure for Q4 totaled RMB 1.2 billion, and annual CapEx came in at RMB 5.9 billion, indicating that we have achieved another year of free cash flow.

Now, moving on to business outlook based on current market and operating conditions, we estimated that the industry growth would likely be around 15% for 2025, and we anticipate the company's parcel volume for the year to be in the range of 40.8 billion-42.2 billion, representing a 20% to 24% increase year over year. Now, these estimates represent management's current and preliminary view, which are subject to change. Now, this concludes our prepared remarks. Operator, please open the line for questions. Thank you.

Operator (participant)

Thank you. 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. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. We do ask that you please limit yourself to two questions. Today's first question comes from Ronald Keung with Goldman Sachs. Please go ahead.

Ronald Keung (Analyst)

谢谢赖总、严总和Sophie。那也恭喜这个非常稳健的这个2024年的表现。那可能两个提问吧，我们看到这个2025年的目标，包括增长，的确要高于行业，而且刚才说了这个2020到2024。那想知道我们一季度就一二月到三月目前为止有没有看到这个战略的调整以后，我们这个市场份额的一些最近的一些发展，还有就我们今年战略的一个调整以后，对这个看到行业大家的一些其他的同行，就整个价格目前情况是怎样，然后对于我们整个2025年我们应该怎么去判断现在有包裹要加速的增长，那对今年利润的一个影响。然后最后就想听2025年这个CapEx，是不是我们的CapEx cycle已经到顶了，所以我们就2025年不会再有一个比较大的一些CapEx的计划。那我翻译一下。

Thank you, management, for the opportunity to ask a question. Number one is want to ask about our priority on volume growth this year, above industry. How has our market share progressed so far this year, the first quarter? What has been the impact on pricing, just how other players are reacting? What would be the impact to just our balance of profits this year with this strategic shift? Want to hear about our CapEx, whether we think the CapEx cycle has peaked and the CapEx plan for 2025. Thank you.

这是今年的目标，通通的目标，业务量增长20%到24%。啊，这个是基于我们对行业的判断。这个，啊，这个因为中通一直致力于业务量、利润、服务质量的均衡发展。那我们结合去年的情况呢，我们今年呢还是会重点在这个服务质量和市场份额方面，啊，这个做到优先，要扩大这个，啊，就是份额的占比，啊，保持，持续提升服务质量，保持合理的利润水平。嗯，这个是份额方面，啊，呃，你问的这个12月份的这个增长的情况，行业12月份，啊，这个需求强劲，我们预计今年快递市场能保持15%左右的增长，主要驱动的因素包括电商、促销常态化、次线、轻小件快速增加，第二，直播电商、逆向物流等新业务持续带来增量，三，近期政府出台各项利好政策，如消费补贴与旧换新等，提升了居民消费意愿，促进消费回暖。快递的高性价比支撑了包裹量的持续增长，未来跨境物流、进村进场物流将为行业带来更多需求，我们预计快递行业增量依然可观，啊，这个，这个情况。

Huiping Yan (CFO)

First, let me translate for the Chairman for the first two parts of your question, and then I'll answer the third part. For this year we anticipated the growth of the industry to be around 15%, and we set our goal to be growing at 20% to 24%, which certainly indicate that we have a plan to grow above industry average, in turn, protecting and also enlarging our market share. It is, of course, without saying that we continue to focus on our strategy, overall strategy, which is to improve quality of services, maintain and expand our market leadership, as well as achieve reasonable profit. This year our focus will be gravitated towards the quality of services and also the market share and volume increases, and it's very clear, indicated through our numbers.

The second part of the question relating to the first two months into the year, where we have observed the growth momentum is still very much demonstrated, because there are a lot of normalized e-commerce promotions. There are a lot of increases in the smaller, lighter weight packages, and then the new business model such as live streaming and e-commerce, and also reverse logistics continues to drive additional volume. Also, not the least, the government has rolled out lots of favorable policies to stimulate consumption, including trade-ins and subsidies, which also boosted consumer willingness to spend, and it will support a recovery in consumption. The cost effectiveness of the express delivery industry has in the past and will continue in the future to sustain steady increase in the parcel volume to consumption is still with potential for growth.

Now, looking ahead, some of the cross-border logistics and rural industry logistics will also fuel our industry demand as we talked about ZTO preparing and improving our capability in the supply chain logistics services. We think that the overall potential for the growth is very much intact, and for us to gradually roll out our new focus or new gravitation in the market share as well as our, alongside our quality of customer services, and it will help us achieve the goal that we set for us. Now, this year we have achieved, in 2024, our CapEx came in at RMB 5.9 billion.

As we have pretty much established the entire network with close to 95 or about 95 super sorting centers, most of the CapEx spending for this year, 2025, will be on the remaining few tracks of land that we would want to secure to replace current rental spaces. Plus also there are some upgrades of the existing facilities that will be in the plan. We estimate our total 2025 CapEx will come in somewhere around RMB 5 billion-RMB 5.5 billion. Again, with strong cash flow from our operations, we intend to repeat another free cash flow year. I hope that answers your question, Ronald.

Ronald Keung (Analyst)

Yes, thank you.

Operator (participant)

Thank you. Our next question comes from Qianlei Fan with Morgan Stanley. Please go ahead.

Qianlei Fan (Analyst)

and technology itself will decrease rapidly, based on this assumption, is it possible to change our consideration of CapEx in the medium term? Let me translate. Thank you, management, for taking my question, and congratulations on the very solid earnings growth. I have two questions. The first question is about technology. In this year, since last year we have started to see some speed up in AI and other technologies globally, and that has driven some technology that potentially could be applied into the logistics sector, for example, autonomous driving, drones, humanoids. I recall that maybe during the past decade we have been achieving cost efficiency improvements through automation and self-owned trucks, and the economy of scale has been marginally decreased. With the new development in technology and AI, is there any new potential in terms of cost saving or in terms of revenue expansion in the next decade? The same question is also related to that. Ms.

Yan has mentioned CapEx has been largely done regarding the sorting center, like system, in China. Over the medium term, if we assume that the technology continue to evolve very fast, the cost of applying technology drops rapidly. Will that impact our expectation on CapEx over the medium term? Thank you.

Meisong Lai (Chairman and CEO)

谢谢你的提问啊。今天这个AI人工智能在快递业其实应用的场景非常的多，比如在这个知识视觉方面，我们将视觉识别与分解设备联动起来，通过系统自动驱动业务流程，调整减少处分，提升操作效率。在分单领域实现了四代码的自动生成。这些应用呢，其实既提升了速度，又降低了成本。今天这个，呃，自动设备哈，这个品类也很多，比如说翻板机啊，这个载带机啊，这个交叉带分解机，它应用在不同体量的这个末端软体。呃，我，我近期呢，走访软体非常的多。其实今天因为智能设备的提升，快递可以做到哈，这个标准化，就是又快又好啊，而且，呃，成本下降还是非常的快。呃，第二个呢，就是这个无人车啊，无人机啊，自动驾驶啊，这个也进入了商业化的测试阶段。我们中通呢，秉承开放的态度，与市场上的前沿公司合作，这个整合资源共同推进技术落地。呃，今年呢，我估计这个无人车快递啊，从站点到末单，将会是一个非常应用好的场景。我举个例子啊，这个一台无人车大概每个月的费用2,000多到3,000块钱，它每天可以啊，这个操作的建量大概在1,500到2,000票。那我们传统的用电车或者是用燃油车呢，大概是1毛5分钱一条，因为无人车呢，只要7到8分钱。如果我们搞集采啊，跟厂家深度合作，成本还会更低，有可能会到6到7分，乃至会到5分钱。所以我们今年呢，会大力在末单，在能力建设方面，从源头啊，配备相应的智能设备。啊，这个智能设备配了以后呢，就是时效会大幅度的提前。第二呢，我们会在这个晚点到一站呢，啊，使用大量的无人车啊，这个随着这个推进的速度，包括啊，政府在这一方面，其实路权开放也越来越多的城市开放，相信呢，会给这个科技，会给快递这个降本增效，跟质量方面啊，带来一定的应用场景和效率的提升。谢谢。

Huiping Yan (CFO)

Sure, yeah. I'll again answer, translate for the first part, and then more specifically address your second part of the question as it relates to the cost. There has been a wide, wide application of AI technology in the industry, and of course ZTO is, without exception. In, for example, machine vision, we integrated with a visual recognition technology, and also the algorithm in sorting, in our sorting equipment and the process, enabling the system to automatically adjust operating procedures, and also reduce sorting errors and improve efficiency. In the order processing field, AI also enabled automatic generation of four-segment tracking codes. The four-segment tracking codes will allow the smallest unit of destination determination so that the package could go directly to the courier.

In terms of customer service, for example, we also have AI-powered tools to enable quicker response speed as well as reduce dependency on human intervention. There are plenty of opportunities that are currently already in place for us to utilize this technology. Certainly, as it continues to develop, we will stay at the forefront to cooperate and work with the leading research companies in applying their technology in our operational environment. Chairman, I refer to some of the application as well, not only to our operating platform, but also to our network partners on the last mile front end to end. For example, he indicated that he has recently visited many of our franchise outlets, and he has observed the improved level of automation, which allowed not only standardization of the operation of express delivery, but also improved efficiency, reduced cost.

Some of the specific examples that we are able to work with our network partners in empowering them in adopting advanced technology includes autonomous driving vehicles. Chairman indicated that this application already went into the commercialization. We maintained an open attitude towards new technology and work in collaboration with these research firm, with, and rolled out solutions specifically for our initiatives, which is the direct link. For one, autonomous vehicles, it has great advantage over manned vehicles. Examples here is on average, on a monthly average, one manned vehicle would cost about RMB 2,000 to RMB 3,000, and the daily operating capacity is about 1,500 to 2,000 packages. The traditional manned vehicles are typically fossil fuel powered vehicle, and it costs about RMB 0.15 per package.

Using the autonomous vehicle that we are currently in design and ready to roll out in 2025, would estimate cost only RMB 0.7 to RMB 0.8 per package. We are looking to purchase in bulk with these factories and the research firm, which will further reduce the cost on a per unit basis to somewhere around RMB 0.5 to RMB 0.6 or even lower to RMB 0.5. One of our focus is not necessarily spending our own money, but using our brand, using our influence to work with the research firm as well as the manufacturer in empowering our network partners to secure OEM equipment and offer better competitive price for our network partners.

Secondly, the example that Chairman referred to is when we, when our network partners, the outlet, use more and more of the autonomous vehicles, where the government continuously roll out, or remove limitation on the use of autonomous vehicles on the road, we believe there will be greater opportunity for us to help reduce per unit cost and improve efficiency. Now, to the third part of the question, as I alluded to earlier, we are of the philosophy that at the right time, spending the right amount of money, technology is continuously evolving, and we are watching closely in how it could best integrate into our operations as well as helping our network partners in improving their efficiencies. At the forefront, we will utilize our brand influence as well as our technological sensitivity as well as awareness.

You, as you know, that we have over 1,100 IT personnel, including some of the algorithm engineers. They will help us in participating and benefiting from this technological, technological development trend. Cost-wise, it is very much paced with our volume increase as well as our efficiency gain plan. To just bring about additional color, as we truly achieve the tri-layer throughput, as our volume continues to increase, then the cost will be deployed, as we mentioned earlier, scientifically. Making investment is important for us. We are, from a very practical term, approaching this option for us.

Qianlei Fan (Analyst)

Thank you.

Operator (participant)

Thank you very much. That's very insightful. Thank you.

Qianlei Fan (Analyst)

Thank you.

Operator (participant)

Our next question comes from Aaron Wu with UBS. Please go ahead.

Aaron Wu (Director)

Thank you, Mr. Lai, Ms. Yan, and Sophie for taking my question. I got two questions. First one is regarding our retail, including the retail parcel. We have seen strong growth momentum last year, and do you see that momentum would continue for this year? And do we have any growth target on that? Also we have noticed the competition, even on this front, is getting more intense. What kind of the UE level we have seen during the past couple of quarters and the trend we expect going forward? Another question is also regarding our cost. We have seen our core cost per parcel, including transport and sorting cost, have been below like CNY 0.7. What would be the potential cost-cutting potential from here and the level we would eventually see going forward?

Do we expand, do we see like the cost burden from social insurance will be, would be that big for us? Thank you.

Meisong Lai (Chairman and CEO)

谢谢你的提问啊。这个散件呢，是我们中通工作的一项重要的一项指标。呃，它是这个高质量快递的一个具体的体系。呃，也是哈，中通跟那个优秀品牌缩小差距的一个具体的一个展现。我们希望呢，中通其实在全链路这个收转运派转运环节的能力还是非常强的。但是我们上门服务的能力呢，啊，相对来讲跟优秀品牌还有一定一定的差距。我们从去年开始就是啊，把这个业务员的收入增加，以及啊，这个散件比例的增长呢，作为一项重要的工作，效果还是比较明显的。去年呢，四季度呢，我们的散件规模已经超过了700万件，自有的散件300万件，逆向件400万件。那我们今年的目标呢，是散件要做到840，840万件。其实这个目标定呢，还是比较高的，差不多要增长，呃，50%左右。啊，这个，那具体的落实的这个措施呢，有啊，持续推进，到脚到边。我们通过线上报价工具，将成本落实到我们的门店和业务员，让让利小店员去消费者，提升业务员揽件、揽收散件这个积极性。第二呢，啊，这个紧抓服务质量，我们在全网进行平台服务，要求宣贯去考核，升级优化揽收系统工具，确保上门揽收质量，持续保持行业领先。第三呢，加强平台逆向件的合作，我们通过服务能力升级，强化沟通，扩大平台逆向件的收益及合作区域。第四个呢，扩大散件直线产品，我们通过线上线下营销活动，推广优惠制小城市，地推拓展生产客户等方式，增强消费者对中通品牌的触达。那散件呢，我们还对小哥呢，有一些激励，就是这个啊，上门呢，也有一些规定，就是比如说两小时上门，一小时上门，乃至我们以预算为单位啊，我们未来有可能能够做到半小时乃至更短的时间。那你刚才提到的成本的问题呢，啊，这个我们认为从转运环节来讲，我们除了哈，这个呃，分解的哈，各个环节的啊，这个把控，以及装载力啊，包括这个上门抵家始发站点跟目的地站点的链接，始发中心跟目的地站点的链接啊，尽可能的减少这个分布次数啊，这个加强对这个装载力的啊，这个提升啊，成本下降呢，还是我们今年的目标是转运环节下降三分钱。那其实呢，揽收揽派环节的下降的空间呢，更大。这个我们今年呢，会在这一方面呢，加强完整的能力建设，到脚到边的推广，以及啊，责任末单工作的啊，这个推进。我们今年呢，完全责任末单的目标要做到42.6%，其实差不多四成的件会连到末单。那一票件呢，可以节省两毛多钱。我们相信呢，啊，这个通过进一步优化啊，这个成本下降的空间呢，还是啊，呃，非常可观的。关于社保呢，这个中通始终坚持以人为本，不但优化快递员的权益保障，嗯，我们自有的哈，这个员工及外包员工的社保交纳率为100%。业务员呢，这个快递小哥的三保交纳率100%，并在行业内首推小哥保，这个团团一行由总部出资，为全网小哥投保全产品意外保险。我们欢迎出台快递小哥社保管理方案，进一步加强小哥权益保护。目前我们末单小哥稳定性高，社保不该灭，在行业里保持领先。如政策全面推动，我们将享有更低的整改成本，呃，成本优势将进一步释放。其实我们一直也是跟我们的合作伙伴一起动员他们啊，这个要让小哥啊，更有获得感。就除了啊，这个到脚到边的推广，包括社保方面的这个保障。谢谢。

Operator (participant)

Thank you for your question, and let me translate and supplement where we be. First of all, regarding the retail volume, in Q4, our average retail parcel volume exceeded seven million parcels, with three million from our own ordering channel and about four million from the reverse parcel, which doubled from last year. For 2025, our goal is to achieve 8.4 million daily volume, on average. You know, this compared to 2024 at 5.46 million, which more than will likely to be a double in that. It's a pretty high goal, and we have planned our passageway to achieve such goal in the following four areas. One is to continue to implement our initiatives so that our couriers can achieve the lion's share of the retail market price.

The tools that we will use are embedded in their handheld devices, which will help incentivize the couriers to serve retail packages. Number two, we will continue to work with the platform in implementing the measurement metrics and make that part of the measurement internally so that the specific targets, specific goals will be achieved. The system improvements will also be in sync with such initiatives. The continued collaboration or deepening arrangements with our platform will also help expand the service area of the retail or specifically reverse parcels. The product differentiation in, as number four, will help improve our ability to serve different customer needs, if it's speed, if it's quality, if it's combination. We will be able to expand and meet different demands.

The question you have also mentioned about the cost further reduction. We believe in terms of our transit, what we have done in continuous breakdown of the whole process and reduce damage, reduce loss, and also together with what we mentioned, the tri-layer throughput model, will help us reduce sortation frequency as well as connecting destination and origination outlets or centers will help us reduce the cost on a per unit basis. Our goal for 2025 is to achieve at least RMB 0.03 reduction for sortation and transportation combined unit cost. With the success in implementation of our initiatives to establish direct link between outlets and post, our goal is to have around 42.6% or almost 40% and above of the packages go directly to the outlet, which will translate into about RMB 0.20 per package saving.

We think there are, again, more opportunities for us to reduce costs as our volume continues to improve and increase. Now, the third question regarding the social, secure, social, welfare expenses, we've always focused on people, and continuously we protect and improve the interest and the rights of our couriers. We have our self-employed employees as well as the outsourcing employees, 100% coverage on their social welfare payment. The couriers also were encouraged to, we also encourage our outlet owners to cover the couriers, and we have achieved, helped them achieve 100% commercial insurance coverage. To be noted is that in the industry, we are the first to roll out a corporate-sponsored all-weather 24/7 accidental group insurance for our couriers. Currently, the stability or the turnover rate performance of our courier is, in the industry, relatively better than the rest.

We not only have the lower cost, but also have the willingness, yeah, also have the willingness to work with the brand to provide better, a sense of belonging and also a sense of achievement. With the radius surrounding the post, we believe we are able to help our couriers not only receive better income, but also have better work environment and safer work environment. I hope that answers your question.

Aaron Wu (Director)

Thank you, Ms. Yan. Yeah, that's very clear. Thank you.

Huiping Yan (CFO)

Thank you. This concludes our question and answer session. I'd like to turn the conference back over to the company for closing remarks.

Operator (participant)

Again, thank you everybody for joining today's call, and thank you for your continued support. We are available for further questions or discussions, and we look forward to talking to you soon.

Huiping Yan (CFO)

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.