Good day, and welcome to the ZTO Express Fourth Quarter and Full Year 2024 Financial Results Conference Call. [Operator Instructions] 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.

Thank you, Rocco. 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 the 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. Meisong Lai.

[Foreign Language]

Thank you, Chairman Lai. Now let me translate first. [Interpreted] 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 RMB 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 the consumers' growing price sensitivity, a proportion of lower-value parcels have continued to increase, exerting downward pressure on logistics pricing. Facing challenges, ZTO stayed committed to our high-quality growth strategy. On one hand, we accelerated the development of differentiated products and services and deepen the cooperation with e-commerce platforms, optimizing product mix as well as profitability while enhancing brand recognition and customer satisfaction. On another, we strengthened the standardization and coordination across our operational segments of our transit platform, further improved end-to-end timeliness, reduced the loss and damage and complaint rate. 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 RMB 34 billion, growing 12.6% year-over-year. Notably, 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 $0.08 positive enhancement to ASP for the core express delivery business. Alleviating the impact from lower average weight per parcel and the price competition. Together with continued operational cost efficiency and a stable SG&A structure, ZTO achieved an adjusted annual net income of RMB 10.15 billion,…

Thank you, Chairman Lai, and thank you, Sophie. 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 referred to year-over-year comparisons. Detailed financial information performances, unit 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 RMB 9.7 billion for the fourth quarter and 12.6% or RMB 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 $0.13 for Q4 and 2.7% or $0.04 for the year as the impact of decline in average weight per parcel, an 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 $0.93 for Q4 and 1.9% to $0.87 for the year. Combined unit cost of sorting and transportation decreased 6.5% or $0.06 for Q4. And for the year, it was 6% or $0.04, benefiting largely from economies of scale, specifically unit cost of line haul transportation decreased 11.1% to $0.40 for Q4 and decreased 8.7% to $0.41 for the year driven by more effective route planning…

[Operator Instructions] Today's first question comes from Ronald Keung with Goldman Sachs.

[Foreign Language] So number one is, I want to ask about our priority on volume growth this year above industry. And so how has our market share progress so far this year, the first quarter? And what has been the impact on pricing, just how other players are reacting? And what would be the impact to just our balance of profits this year with this strategic shift? And I want to hear about our CapEx, whether we think the CapEx cycle has peaked and the CapEx plan for 2025?

[Foreign Language]

[Interpreted] So first, let me translate for the Chairman for the first 2 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 16%. 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. And 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. Then the second part of the question relating to the first 2 months into the year where we have observed. The growth momentum is still very much demonstrated because they are observed a lot of normalized e-commerce promotions. There are a lot of rapid increases in the smaller, lighter weight packages and in the new business model, such as live streaming and e-commerce and also reverse logistics continues to drive additional volume. And then also, not the least, the government has rolled out a lot 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 express delivery industry has in the past and will continue in the future to sustain steady increase in the parcel volume because 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. So 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 and then plus also there are some upgrades of the existing facilities that will be in the plan. So we estimate our total 2025 CapEx will come in somewhere around RMB 5 billion to RMB 5.5 billion. And again, with strong cash flow from operations, we intend to repeat another free cash flow year. I hope that answers your question, Ronald.

And our next question comes from Qianlei Fan with Morgan Stanley.

[Foreign Language] Congratulations on a very solid earnings growth. I have 2 questions. The first question is about technology. So in this year -- since last year, we have seen some speed up in AI and other technologies globally. And that has driven some technology or potentially could be applied into the logistics sector, for example, autonomous driving drones, humanoid? So -- and recall that maybe we have during the past decade have been achieving cost efficiency improvements through automation and self-owned trucks and the economy of scale has been marginally decreased. So with the new development in technology and AI, is there any new potential in terms of cost savings or in terms of revenue expansion in the next decade? And the same question is also related to that. So as Mrs. Yan has mentioned, CapEx has been largely done regarding the sorting center like system in China. But over the medium term, if we assume that the technology continues to evolve very fast, the cost of applying technology drops rapidly. Will that impact our expectation on CapEx over the medium term?

[Foreign Language]

[Interpreted] Yes. 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 application of AI technology in the industry. And of course, ZTO is without exception. For example, machine vision, we integrated with visual recognition technology and also the algorithm 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 quarter, processing field AI also enabled automatic generation of 4 segment tracking codes. The 4 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. So there are plenty of opportunities that are currently already in place for us to utilize this technology. And 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 Lai referred 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. 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…

And our next question comes from Aaron Luo with UBS.

[Foreign Language] I got 2 questions. First one is regarding our retail, including the return parcel. We have seen strong growth momentum last year and do you see that, that momentum would continue for this year? And do we have any growth target on that? Also, we have noted the competition on this front is getting more intense. What's 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 costs have been below RMB 0.7. And what would be the potential -- cost cutting potential from here? And the level we would eventually see going forward? And do we expect -- do we see like the cost burden from social insurance would be that big for us?

[Foreign Language]

[Interpreted] Thank you for your question. And let me translate and supplement where need be. So first of all, regarding the retail volume. In Q4, our average retail parcel volume exceeded 7 million parcels, with 3 million from our own ordering channel and then about 4 million from the reverse parcel, which doubled from last year. For 2025, our goal is to achieve 8.4 million daily volume on average, this compared to 2024 at 5.46 million, which more than -- will likely to be doubled in that. It's a pretty high goal. And so we have planned our passage way to achieve such goal in the following 4 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 is 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 target, 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 as #4 will help improve our ability to serve different customer needs. If it's speed, if it's quality, if it's a combination, we will be able to expand and meet different demands. And the question that you have -- the question you have also mentioned about the cost further reduction. We believe from -- in terms of our transit, what we have done in continuous breakdown of the whole process and reduce damage reduced loss. And also…

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

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.

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. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]