Good day, and welcome to the ZTO conference call and webcast to announce the fourth quarter and full year 2021 financial results. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Huiping Yan, Chief Financial Officer. Ms. Yan, the floor is yours, ma'am.

Thank you, operator. Hello, everyone, and thank you for joining us today. The company's results and an 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 Ms. Huiping Yan, myself, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and future plans, followed by myself who will go through financials and guidance. We will both be available to answer 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 conditions 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, performances or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties and factors are included in the company's filings with the U.S. Securities and Exchange Commission. 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 by law. It is now my pleasure to introduce Mr. Meisong Lai. Mr. Lai will go through his prepared remarks in their entirety in Chinese before I translate for him in English. [Foreign Language]

[Foreign Language]

Thank you, Mr. Lai. Let me translate first. [Interpreted] Hello, everyone, and thank you for joining us today. In the fourth quarter of 2021, ZTO delivered a 6.34 billion parcel volume, which increased 17.2% and expanded our leading market share by 0.2 points. While maintaining a superior quality of service and customer satisfaction, we continued our focus on profitable growth volume and grew our net income 35% year-over-year to reach CNY 1.75 billion. The year of 2021 was exceptional. Facing continued COVID-19 pandemic shock waves, complex geopolitical environment and intense competition in the industry, ZTO once again achieved solid growth against a slew of uncertainties by being self-assured and the best we can. We delivered 22.3 billion parcels and became the first express delivery company in the world to achieve an annual parcel volume that exceed 20 billion. Our market share advanced to a robust 20.6% for the year. Everyone under the ZTO brand collaborated and made remarkable progress in enhancing brand recognition, optimizing operational efficiencies and improving comprehensive capabilities. First, during the annual Double 11 Shopping Festival, ZTO became the first express delivery company with a daily capacity of over 100 million parcels across all stages, 4 of them, throughout the parcel flow. The incremental volume of 5.29 billion parcels for the year solidified our No.1 position in the industry for the sixth consecutive year. Second, we held steadfastly the #1 position above our peers for quality of services and customer satisfaction, measured by a comprehensive set of indices tracked by Cainiao and the customer complaint rate closely monitored by the State Post Bureau. Third, we made further strides on creating a just, equitable and transparent environment in which our shared success culture was deepened, our sense of social responsibility and accountability enhanced, and our network partners are increasingly…

[Operator Instructions] The first question we have will come from Qianlei Fan of Morgan Stanley.

[Foreign Language] So I'll translate for myself. Thank you management for taking my question and congratulations on the very solid fourth quarter results. So I have 2 questions. The first question is about cost trend. So considering several factors, higher fuel price and potential labor cost inflation, also taking into consideration potential economy of scale, following a higher volume being handled in this year and also the potential disruption from the recent COVID resurgence, which might bring some fluctuation to the volume, so what's the unit cost outlook for 2022 from the management's expectation? So this is the first question. And the second question is about profitability. So we have heard from the industry that some of the players are discussing with their customers about pricing hikes due to the cost inflation. But taking into consideration of the current economic outlook, the potential pressure your customers are facing, considering for example, the soft consumption demand growth as well as the cost inflation they are facing, do you think there could be downside risk to the pricing or unit profitability? Do you see downside risk to the previous guidance on the bottom line over 30% year-on-year profit growth, which you have guided last time? So these are my questions.

[Foreign Language]

[Interpreted] Thank you for your...

[Foreign Language]

Thank you for your question. And let me translate and supplement where needed. [Interpreted] First question, you really asked 3 questions. The first question is regarding the cost. Assuming the current condition remains, the stable market conditions and pandemic situation remains under control. We believe our cost productivity will continue to generate results. The digitized initiative as well as more detailed level of management throughout our operating process. For example, low rate, increased utilization of resources improvements, the high -- there is a high probability that our costs will continue to be managed down. I'll supplement one point. The oil price increase, the special situation in China because there is a regulating mechanism, so in the fourth quarter, we are already seeing such impact coming through. But yet, we are able to utilize some of the stock that we purposefully purchased so that we can alleviate some of the cost increases. In fact, the estimated oil hike cost impact is about CNY 0.03 in the fourth quarter and we were able to still gain around CNY 0.03 of productivity in our transportation segment. So that is to say that very reasonably anticipated cost management will give us a confidence that our overall operating costs will likely to continue to gain productivity and perhaps decrease. Second question you asked is really around the [indiscernible] pricing. What has happened in 2021 and before fierce competition and some of them are insensible and deviating from the market reality, those are no longer the case. We believe, in 2022, the stabilization of pricing will go hand in hand with the entire industry's shift from high quantity to higher quality, i.e., higher quality of earnings. Speaking for ourselves, the initiatives that we described earlier in gaining profitable growth through specific mechanisms in pricing, in finding waste and eliminating waste of resources, providing proper pricing to our network partners will allow us to achieve our goal. And currently, first of all, we didn't give guidance. But in any case, on the earnings, we have high confidence that we will significantly improve our earnings compared to 2021.

And the next question we have will come from Tian Hou of TH Capital.

[Foreign Language] Congratulations for a great performance in 2021 under the extreme situation. I have 2 questions. One is what is ZTO's investment plan in 2022 given the market competition is really competing on the uniqueness and competitiveness. So in which area ZTO want to invest to further enhance our competitiveness? And the second is how does Mr. Lai to see the logistics market, the future, given JD is acquiring Debang. So that is 1 thing happened in the logistics market. What's going to happen next? So I would like to hear what's Mr. Lai's view on that.

[Foreign Language]

Let me translate for Mr. Lai and also supplement answers. [Interpreted] We have consistently invested in our infrastructure as well as comprehensive capabilities because we do believe that the future of competition lies with not just the express delivery itself, but all the other comprehensive integrated services that is an ecosystem. Our focus, especially of late, on collaboration amongst all the ecosystem businesses that are developing in our whole system is to maximize the utilization. Our past focus as well as going forward will continue to be on the land acquisition, vehicle upgrades and also automation level of improvement. We are also increasingly paying more attention in supporting our network partners in providing them financial support where needed in developing their own capabilities that is consistent and in sync with our platform's capabilities. And thirdly, we have also begun to invest in technology, in digitization so as to drive further productivity and become competitive in digitized solutioning. Our frontline partners' interest and their right are, in a way, well preserved and protected because we are also investing in our last-mile post system. In summary, all these will allow us to steadfastly, consistently develop our capability internally as well as externally, to go from leading to absolute and equal advantage. The example Mr. Lai gave relates to a tract of land that we acquired lately that is designed to house 6 levels of operations. The first 2 being designed for express delivery business and all the above are open for in-warehouse processing and delivery as well as other comprehensive capabilities that are evolving, such as cold chain services. This will reduce overall cost, improve timeliness and provide better experience for our customers. Now you mentioned about the acquisition by Jingdong of Debang. Certainly, there are many ways of increasing capabilities either through organic or inorganic growth. As we set our sights on developing equal advantage in the future, we will explore feasible and fit in terms of inorganic growth. The development of total comprehensive capabilities has to be done in a way that is the most cost-efficient, driving greater synergy as well as integratable solutions. I hope that answers your question.

Yes, it does. Thank you.

And next, we have of Gangxian Liu of CICC.

[Foreign Language] So let me translate for myself. Congrats for another strong quarter. Two questions on my side. First is sort about ADR. We heard some news about SEC, and we already see some secondary listed company preparing for primarily dual listing in Hong Kong. So I wonder to share -- management to share your view about this potential sort of political risk. And is there any planning or initiatives that we will take? And the second is about the combination of so-called 3 networks. So I wonder what's the current progress and the results as of now? And is there any other specific -- more specific targets for this year? Or a couple of years into the future that you can share with us?

[Foreign Language]

First, let me translate for Mr. Lai for the first question, the answer relating to the tri-layered integrated throughput system. [Interpreted] We have consistently, throughout our past, focused on efficiencies. And we showed our advantage by investing early in planned and facility vehicles as well as sorting equipment. As our competitors slowly catches up with their investment, then that difference within those advantages are narrowing. However, because of our increasing volume and our efficiencies in our traditional first layer, which is connection very effectively run between sorting hubs center to center, we are developing greater efficiencies and capabilities amongst all the outlets towards their connection, better connection with our sorting hubs. The second layer is the origination outlets to destination sorting hub. So therefore, they are bypassing the origination sorting center. In the future, we are expecting about 100 of super sorting centers that is owned and operated by us with 200 to 300 self-sufficient and capable sorting hubs-- or sorting mini centers operated by our network partners, who has the capability of connecting directly to sorting centers bypassing the origination center. And that is the second layer. The third layer refers to the capability of direct route trucks running, connecting our origination outlets to destination outlets. We have estimated each segment of the trip saved could reduce per parcel cost by around CNY 0.30, and that is quite meaningful. To achieve that, we are currently and have been in the past, but currently more so, in helping our network partners, who we mentioned that has been with the company, has confidence and trust in us and the future, who are willing to invest and develop their own capabilities. We expect in the next 3 to 5 years, about 15% to 20% of our volume will come from the operating…

Next, we will take Fan Tso of Bank of America.

[Foreign Language] Maybe now I'll translate my 2 questions. Number one is the COVID lockdown impact on our volume. Would management be able to quantify a little bit, especially in cities that we are seeing more stringent lockdown such as Shenzhen and Dongguan, how it is impacting our daily volume? And second question is about our time definite parcel business. Could management provide an update? And are there any target in terms of volume or revenue contribution in the medium to long-term?

First of all, let me make a remark that we have already exceeded our 1-hour call and the market is already open. So we will refrain from any comments that could specifically communicate numbers and so on. But we are willing to answer the question regarding the COVID situation.

[Foreign Language]

[Interpreted] Let me just make some closing remarks here because we really want to make sure our compliance. -- the -- We have trust in the government and the agencies who are working hard day and night in addressing the COVID situation. The impact is there for sure. You are all aware what's in the public. It was announced here and there all the numbers. So please pay attention to those and gather your numbers on that. And regarding the time-definite product, very quick, it's a product that we rolled out last year aimed to standardize the time-definite requirements and for commitment around the promise of time and also for the delivery. So please, operator, we need to conclude this call.

Great. Yes...ma'am.

We are open for call subsequent. We have scheduled many calls for you. And please feel free to connect with us.

Thank you, ma'am. Sorry about that. All right. Again, the conference call has now concluded. Again, we thank the management team for your time today, and thank you, everyone, for attending. At this time, you may disconnect your lines. Thank you, everyone. Take care, and have a wonderful day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]