Good day, and welcome to the ZTO Express to announce first quarter 2025 financial results conference call. [Operator Instructions] Please note this 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, 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 in 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 these 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. [Foreign Language]

[Foreign Language]

[Interpreted] Hello, everyone. Thank you for joining today's conference call. In the first quarter of 2025, ZTO maintained its industry-leading service quality, delivered a total parcel volume of 8.5 billion, up 19.1% year-over-year and achieved an adjusted net income of CNY 2.3 billion, which increased 1.6% year-over-year. Our service quality, scale and profitability continue to lead the industry. In the first quarter of 2025, the express delivery industry grew its parcel volume by 21.6%. However, the proportion of lower-value parcels further enlarged and price competition continued to intensify. In addressing the misalignment between volume growth and revenue expansion, we remain focused on service quality and volume growth. And while rejecting rational pricing practices, we strategically increased our penetration into the low-value parcel segment. On one hand, we continuously improve end-to-end timeliness and lowered unit costs through process standardization and integration. We were able to lead the way with speed to solidify brand advantages and leverage excellence to further efficiency gains. On the other hand, as a part of the strategy to build long-term competitive advantages, we beefed up efforts to empower our network partners through keeping the policies relatively stable yet urging improvements in last-mile service capabilities and cost competitiveness. Notably, the company has significant progress in developing differentiated products and services. First, ZTO earned greater trust and opportunity deepened collaboration with e-commerce platforms and their enterprise customers through continuously improved service quality and coverage. Retail parcel volume increased 46% year-over-year in first quarter with reverse logistics volumes surged over 150%. We strengthened brand awareness and customer loyalty. Enhanced product mix brought a CNY 0.12 positive shift in ASP for core express services in first quarter. Second, through digitization and accountability metrics, unit transportation and sorting costs decreased by CNY 0.09 year-over-year, demonstrating ZTO's commitment to sales improvement as well…

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 refer to year-over-year comparisons. 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 first quarter, we adhered to the principle of profitable growth and continue to improve the quality of services and customer satisfaction. Our parcel volume grew 19.1% to reach CNY 8.5 billion, and we achieved CNY 2.3 billion adjusted net income, which increased 1.6%. Total revenue increased 9.4% to CNY 10.9 billion for the first quarter. ASP for our core express delivery business decreased 7.8% or CNY 0.11 given intensified competition. The CNY 0.06 impact of decrease in average weight per parcel is CNY 0.16 in incremental volume incentives, were partially offset by the CNY 0.12 positive mix shift from increased proportion of KA volume. Total cost of revenue was CNY 8.2 billion, which increased 17.9%. Overall unit cost for the core express delivery business remained flat at CNY 0.94. Combined unit cost of sorting and transportation decreased CNY 0.09 for the quarter, benefiting from economies of scale and various cost productivity gain initiatives. Specifically, unit cost of line-haul transportation decreased 13.2% to CNY 0.41, driven by more effective route planning in conjunction with improvements in fleet operations. Unit sorting costs decreased 10.4% to CNY 0.27, benefiting from improvements in automation and labor efficiency. Other cost of revenue included KA-related pickup and delivery fulfillment costs paid to our network partners; and on a total volume denominator basis, it increased CNY 0.10, which was in line with KA volume increases. Gross profit decreased 10.4% to CNY 2.7 billion and gross profit margin rate decreased 5.4 points to 24.7%. SG&A, excluding SBC, decreased 13.5% to CNY 517 million. SG&A expenses, excluding SBC, as a percentage of revenue decreased to 4.7%, reflecting strong corporate cost efficiency. Income from operations increased 6.1% to CNY 2.4 billion and associated margin rate decreased 0.7 points to 22.1%. Adjusted EBITDA increased 0.7% to CNY 3.7 billion. And operating cash flow was CNY 2.4 billion for the quarter, which increased 16.3%. Capital expenditure for Q1 totaled CNY 2 billion, and we anticipate our annual CapEx in 2025 to be between CNY 5.5 billion to CNY 6 billion. Now moving on to business outlook. Based on our assessment of today's market conditions and business plan performance outlook, we are reiterating our 2025 full year parcel volume guidance of 40.8 billion to 42.2 billion, which equates to a 20% to 24% increase year-over-year. 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 Instructions] The first question today comes from Ronald Keung with Goldman Sachs.

[Foreign Language] The first is one here about the competition particularly into the second quarter, given our target, which is to still grow faster than the industry volumes at -- seeing that the first quarter, I think, we were slightly slower than the industry. So I want to hear how much of investments are we willing to make and take to achieve this volume target. And what would be the implications to absolute profit for the remainder of the year? Second is we've seen a very good growth for your retail parcels and also reverse logistics. Want to hear the scale of this business and some of the main targets for this business.

[Foreign Language]

Thank you for your questions, and I will translate for Chairman, answer. [Interpreted] First of all, our goal to achieve our volume growth and this is still consistent with our strategy, ensuring quality of services and focusing on volume leadership and expanding that leadership while achieving reasonable level of profit. We -- the most recent performance, particularly in first quarter, while we maintained overall structure of the network policies to be stable, we specifically introduced the existing volume versus incremental volume policies to incentivize our network partners. So on an overall result basis, we have narrowed the gap between our volume growth to industry average. Certainly, there is still a gap, and then we intend to continue to narrow that because our overall annual strategy remains and our goal or our guidance for the total year continue to -- is still staying as we reiterated our guidance. So for the second part of the question, we have focused on upgrading our revenue structure and particularly achieved great results as associated with the retail parcel and particularly reverse logistic parcels. In the first quarter, our daily parcel volume averaged around 6 million, a year-over-year increase of 45%, which is significantly outpacing the overall market growth. And among these, we have -- the reverse logistics exceeded daily volume of 3.5 million and a year-over-year growth over 150%. So these are our continued focus as we deepen our cooperation with major e-commerce platforms, which are also expanding their reverse logistics operations so that we are focusing on measures such as reversing transportation capacity, we train our network partners to be more efficient in meeting the quality requirements, and implementing incentive policies to ensure service upgrades and expand the operating regions coverage. So as of late, we are looking at our parcel volume increasing even more significantly, reaching towards 8 million or even at peak days, over 10 million parcels a day. In connection with the competition, the reverse parcels per unit price also sustained pressure. However, the reverse logistics services has a high barrier for entrants. ZTO's early mover effort as well as our focus and deep relationship that's built with the platforms will allow us to continue to outpace the rest because everybody else, our peers are also focusing on this area. We hope to continue to improve the capacity as well as responsiveness to -- on 2-door delivery and 2-door pickup to help our couriers in servicing our customers properly. As you are aware that improvement of our network partner as well as our couriers' earnings through increasing their proportion of retail parcel to total delivery or e-commerce parcel, their earnings will significantly improve. And that adds to the stability of our overall network. Ronald, I hope this answers your question.

The next question comes from Qianlei Fan with Morgan Stanley.

[Foreign Language] I have 2 questions. The first question is about unit revenue and cost. On the unit revenue side, we have seen that in the first quarter, the volume incentives went to around CNY 0.16. This was higher than about CNY 0.04 in the first quarter of last year and CNY 0.02 for the full year of last year. So going forward, how should we forecast unit volume incentives going forward for the full year? And on the unit cost side, we see that, in the first quarter, if we exclude impact from KA, the unit cost reduction seems to be more significant than we anticipated at the beginning of the year. So taking into consideration of the first quarter performance and also seems like the fuel price are staying relatively low this year, do we have any like updated forecast in terms of unit cost reduction for the full year? And my second question is about AI. So we know that ZTO has been -- very proactively explore the application of AI into its management and operations. So maybe can you update us? Is there any progress with the AI's application into business year-to-date? And going forward, how do you see the potential impact from AI's application, the merger of AI with our business, the impact from that front in terms of our competitive edge versus peers and in terms of like earnings performance?

Seems we lost connection with our speakers, and they've joined back in.

Yes. So we will continue in Qianlei's question.

Can you hear us operator?

Yes, we can hear you.

[Foreign Language]

[Interpreted] Thank you for your question. The first question relates to our unit revenue and cost. The SPA decline largely attribute to 2 aspects of the Q1 market environment. One is the competition really reached white-hot stage. The pricing at the front end is continuously sustained pressure from competition. And then two, the proportion of lower weight or small parcels continue to increase and that both of these give rise to the necessity of, first of all, increased incentives to meet the competition, some of which are specifically targeted to ZTO. And then two, we do have the positive impact from the reverse in KA volume that is growing significantly and outpacing the total market. And that contributed about CNY 0.12 to offset the volume incentives and weight per parcel declined. So going forward, we continue to emphasize on the fact that volume is important, certainly need to be supported by high quality of services. So balanced approach continues to be our theme; and when necessary, the volume will be the prioritized focus. So with high quality of services, the price and the volume will be adjusted accordingly based on the market condition and competitive situations in specific markets. And that is our intention to go forward. So again, overall, for your first question relating to revenue or per parcel unit revenue, the pricing is largely driven by competition. On the cost side, we have continued to move forward on our cost efficiency gain initiatives. In the first quarter, the parcel per unit transportation cost decreased by CNY 0.06 and sorting decreased by CNY 0.03. These cost reduction was both driven by economy of scale from the growth in the business volume. And as I mentioned earlier, decline in weight and continued cost cutting helped in a way to improve…

The next question comes from Amy Han with Citigroup.

[Foreign Language] Let me translate for myself. So the first question is about cost. So what is our progress in the direct linkage in the first quarter? And how large can the direct linkage or, let's say, the whole value chain cost optimization contribute to our unit cost cuts in the franchise side and also in the whole value chain this year? And second question is related to the parcel volume growth and the market competition. So the June 18 shopping festival is approaching. But what is our expectation on the parcel volume for the shopping as well of the volume growth? And will the price competition be some ease in the first [ 6 ] season. And because the price competition came earlier and more intense in this year, what is our view on the room for further ASP drop for the industry?

[Foreign Language]

[Interpreted] Thank you very much for your questions. First of all, on our direct linkage from outlets to the last-mile hub progress, this year, we have focused on optimizing outlet layouts and promoting direct sorting and direct delivery to increase the proportion of end-to-end direct linkage. Now this is a critical mission for our overall business focus. The goal is to clearly reduce the last-mile delivery cost and increase the outlets earning. Our goal of 42.6 billion -- 40.8 billion to 42.2 billion goal of total year annual volume would translate into about CNY 4 billion of additional cost savings, hence, earning improvements for the network partner at the outlet level. So I'll give you an example. For the work that we've put in, mostly relates to introducing sorting equipment to help improve the process efficiency of our outlets. On average, we have installed a certain equipment that will automate the sortation work done by the outlets. And typically, that single machine can sort 8,000 to 9,000 packages per operation time frame. And for those outlets that have at least 30,000 packages per day are suitable for installing these equipment. So to give you some specific examples, these will help reduce the sorting cost and based on the current situation of CNY 0.02. For the location fixed cost is about CNY.03. If you bring the package from our sorting -- super sorting center to the outlets, the transportation cost will be about CNY 0.05. So this, together, CNY 0.10 saving equates to the CNY 4 billion that I referred to earlier. So this process of establishing direct linkage is aimed at not to our profit statement but to our network partners to ensure their ability to improve efficiency, reduce cost and secure or solidify network stability because, as you know,…

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

Thank you, everybody, again, for joining today's call. As we mentioned that we continue to focus on being our best and putting -- setting our sights on, of course, the competition at hand and as well as, at the same time, allocating necessary resources to build strong momentum in narrowing the gap to the industry growth in volume as well as building for a stronger foundation for the future of our business. And we welcome your question and discussions with us in the next -- after today's call and look forward to speaking to you all.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]