Q3 2025 ZTO Express (Cayman) Inc Earnings Call

November 20, 2025

Operator: Good day and welcome to the ZTO Express to announce third quarter 2025 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 today's event is being recorded. I would now like to turn the conference over to Sophie Lee, Secretary for the company. Please go ahead.

Good day and welcome to the ZTO Express to announce third quarter 2025 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 today's event is being recorded. I would now like to turn the conference over to Sophie Lee, Secretary for the company. Please go ahead.

Speaker #1: Good day, and welcome to the ZTO to announce third quarter 2025 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.

Speaker #1: 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.

Speaker #1: To withdraw your question, please press star, then two. Please note today's event is being recorded. I would now like to turn the conference over to Sophie Li, Secretary for the company.

Speaker #1: Please go ahead.

Sophie Li: 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 the CEO are Mr. Lai Meisong, Chairman and Chief Executive Officer, and Ms. Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Ms. 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.

Speaker #2: 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.

Speaker #2: On the call today from ZTO are Mr. Meisong Lai, Chairman and Chief Executive Officer, and Ms. Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Ms. Yan, who will go through the financials and guidance.

Speaker #2: 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.

Sophie Li: 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 US 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's 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.

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 US 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's 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.

Speaker #2: 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.

Speaker #2: 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 defer materially from those in the forward-looking statements.

Speaker #2: 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.

Speaker #2: It's not 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.

Speaker #3: 大家好。感谢各位参加今天的电话会议。2025年三季度，快递行业增速稳健，总统保持行业领先的服务水平。完成业务量95.7亿件，同比增长9.8%。调整后净利润比去年同期提升5%，达到25.1亿元。三季度，政府提倡反内卷和基础民生保障，引导有序竞争，遏制不合理的低价行为。快递业整体的价格水平持稳回升，总统坚持以服务质量为先的平衡发展战略。这些响应国家对标杆企业的严格要求，进一步完善和落实高数量和高质量协同发展的方针，激励网络合作伙伴降本增收，提升末单两派能力，成为最后一公里的优选。总统三季度闪电业务量同比增速接近50%，非电商量的增长保持了高速增长的态势。我们通过优化两件模式和精细化管理，提升了服务质量和成本效益，在卷运效益方面。总统持续推进数字化卷行升级，应用标准化成本管控机制，实施更加精准的资源调配和绩效管理，单票制定加分解成本，实现了0.05元的同比下降。进入了四季度，行业整体业务量增长有所放缓，尽管宏观经济的复苏存在不确定性和短期的挑战。快递和物流行业的长期发展前景依然是广阔的。我们将持续专注于自身产品和服务能力的建设，下阶段重点推进的工作有以下五个方面：一，坚守服务质量生命线，健全单到单质量管理体系，将平台指数融入绩效考核，实现质量到岗考核到人确保服务持续领先；二，深化末单能力建设，推进站点分解能力升级，深化质量质送与本地商业部署，降低派件成本，提升闪电占比与末单收益；三，优化网络政策与激励机制，在保障业务量稳健增长的同时，增强政策透明度与公平性，精准制定激励机制，激发网络内生动力；四，推进全链路降本增效，依托前沿技术和数字化工具，优化路由规划，精准配置运力，提升设备投入的科学性和使用效率，加强平台运营各个环节的协同性，赋能网点，持续挖掘运营效益，降低末单两派成本，提升收益；五，维护网络公平性和基层权益，完善沟通与治理机制，及时解决实际问题，保障网点与业务员的切身权益，维护品牌信任度和网络信心；当前，行业正经历着有高数量向量之并举的战略性变迁。宏观经济之下，低价包裹占比的提升，给总统这样的头部企业带来了特殊的新课题。面对这一结构性变化，总统坚定选择以这出量以效取胜的发展路径。我们通过持续的产品升级与精细化管理，在复杂的市场竞争中坚守高质量服务标准，并在合理盈利区间持续拓展业务规模。与此同时，我们的加盟合作伙伴也在经历着白热化价格竞争的锤炼，正积极通过末单能力建设与模式创新，开拓多元化收入来源，持续优化经营效益，进一步增强总统网络的发展韧性与经营信心。竞争是绝大多数行业必然经历的一个过程，面向未来，我们坚信依托中国经济的深厚基础和蓬勃发展的潜力，总统能够继续全程我们独特的企业文化，借助坚实的网络基础，良好的经营能力和稳健的财务实力，在快递和物流行业持续发展中赢得先知，与各方合作伙伴共创价值，用优质的产品与服务造就更多人的幸福。接下来我们请严总给大家介绍财务支付和预支，谢谢大家。

Huiping Yan: Kwai hai. Dao. Jiang. Temperature song sushi. Quiet. Here. Ba. Ping. So. Father luchi woman tongo. Jing. Dong jida sangho jiso jen woman daughter. Hello everyone.

Meisong Lai: Kwai hai. Dao. Jiang. Temperature song sushi. Quiet. Here. Ba. Ping. So. Father luchi woman tongo. Jing. Dong jida sangho jiso jen woman daughter.

Sophie Li: Hello everyone. Thank you for joining today's conference call. China's express delivery industry experienced steady growth during the third quarter of 2025 while maintaining its industry-leading service quality. ZTO grew its parcel volume by 9.8% year over year to reach 9.57 billion parcels. Our adjusted net income was RMB 2.51 billion, which rose 5% over the same period last year. During the quarter, government advocated for grassroots interests against anti-involution and promoted more orderly competition by curbing unreasonable low price practices. As a result, the overall pricing level across the express delivery industry stabilized and began to recover. Adhering to our balanced approach to quality-first growth strategy, ZTO rose up to the higher standards for model enterprises and reinforced the principle designed to achieve coordinated development with both high volume and high quality.

Speaker #4: Hello everyone, thank you for joining today's conference call. China's express delivery industry experience study grew during the third quarter of 2025. While maintaining its industry-leading service quality, ZTO grew its parcel volume by 9.8% year over year to reach 9.57 billion parcels.

Sophie Li: Thank you for joining today's conference call. China's express delivery industry experienced steady growth during the third quarter of 2025 while maintaining its industry-leading service quality. ZTO grew its parcel volume by 9.8% year over year to reach 9.57 billion parcels. Our adjusted net income was RMB 2.51 billion, which rose 5% over the same period last year. During the quarter, government advocated for grassroots interests against anti-involution and promoted more orderly competition by curbing unreasonable low price practices. As a result, the overall pricing level across the express delivery industry stabilized and began to recover. Adhering to our balanced approach to quality-first growth strategy, ZTO rose up to the higher standards for model enterprises and reinforced the principle designed to achieve coordinated development with both high volume and high quality.

Speaker #4: Our adjusted net income was $2.51 billion, which rose 5% over the same period last year. During the quarter, the government advocated for grassroots interests against evolution and promoted more orderly competition by curbing unreasonable low-price practices.

Speaker #4: As a result, the overall pricing level across the express delivery industry stabilized and began to recover. Adhering to our balanced approach of quality first in our growth strategy, ZTO rose to higher standards for model enterprises and reinforced the principle designed to achieve coordinated development with both high volume and high quality.

Sophie Li: We encourage our network partners to reduce costs and increase income by strengthening last mile pickup and delivery capabilities to become the preferred choice of last mile market. ZTO's retail parcel volume maintained strong growth momentum and grew quite close to 50% year on year. Through optimizing the pickup model and the refined, lean process management, we enhanced both service quality and cost efficiency for transit efficiency. ZTO continued to advance the application of smart technology in transforming standardized cost control mechanisms, implementing more efficiency, effective resource allocation, and performance matrix. The combined unit cost of transportation and sorting decreased by $0.05 year on year. Entering the fourth quarter, overall industry volume growth exhibited some moderation. While uncertainties and short term challenges in the microeconomic recovery still exist, the long term prospects for the express delivery and logistics industry remains positive.

We encourage our network partners to reduce costs and increase income by strengthening last mile pickup and delivery capabilities to become the preferred choice of last mile market. ZTO's retail parcel volume maintained strong growth momentum and grew quite close to 50% year on year. Through optimizing the pickup model and the refined, lean process management, we enhanced both service quality and cost efficiency for transit efficiency. ZTO continued to advance the application of smart technology in transforming standardized cost control mechanisms, implementing more efficiency, effective resource allocation, and performance matrix. The combined unit cost of transportation and sorting decreased by $0.05 year on year. Entering the fourth quarter, overall industry volume growth exhibited some moderation. While uncertainties and short term challenges in the microeconomic recovery still exist, the long term prospects for the express delivery and logistics industry remains positive.

Speaker #4: We encourage our network partners to reduce costs and increase income by strengthening last-mile pickup and delivery capabilities to become the preferred choice in the last-mile market.

Speaker #4: ZTO's retail parcel volume maintained strong growth momentum and grew close to 50% year-on-year. Through optimizing the pickup model and the refined lean process management, we enhanced both service quality and cost efficiency.

Speaker #4: For transit efficiency, ZTO continued to advance the application of smart technology in transforming standardized cost control mechanisms. Implementing more effective resource allocation and the performance matrix, the combined unit cost of transportation and sorting decreased by $0.05 year on year.

Speaker #4: Entering the fourth quarter, overall industry volume growth exhibited some moderation. While uncertainties and short-term challenges in the microeconomic recovery still exist, the long-term prospects for the express delivery and logistics industry remain positive.

Speaker #4: We will stay focused on enhancing our products and service capabilities. In the next phase, we will prioritize the following five areas of work. First, uphold service quality as our lifeline.

Sophie Li: We will stay focused on enhancing our products and service capabilities. In the next phase, we will prioritize the following five areas of work. First up, hope service quality as our lifeline. Establish a comprehensive end-to-end quality management service system with integrated platform service indicators for performance evaluations. Assign clear responsibilities and accountabilities, ensuring continued service leadership. Second, deepen last mile capability. Build out, expand, upgrades of sorting capabilities at outlets. Further, implement direct linkage and incorporate link local commercial opportunities. Hence, reduce delivery costs and enhance last mile profitability through a higher retail bustle mix. Third, optimize network policies and incentivize mechanisms while ensuring steady volume growth. Enhance policy transparency and fairness. Implement relevant incentive mechanism to cultivate intrinsic motivation. Fourth, advance end-to-end cost efficiency and synergy. Leverage cutting-edge technologies and digitization tools to optimize route planning with appropriate match to transit capacity.

We will stay focused on enhancing our products and service capabilities. In the next phase, we will prioritize the following five areas of work. First up, hope service quality as our lifeline. Establish a comprehensive end-to-end quality management service system with integrated platform service indicators for performance evaluations. Assign clear responsibilities and accountabilities, ensuring continued service leadership. Second, deepen last mile capability. Build out, expand, upgrades of sorting capabilities at outlets. Further, implement direct linkage and incorporate link local commercial opportunities. Hence, reduce delivery costs and enhance last mile profitability through a higher retail bustle mix. Third, optimize network policies and incentivize mechanisms while ensuring steady volume growth. Enhance policy transparency and fairness. Implement relevant incentive mechanism to cultivate intrinsic motivation. Fourth, advance end-to-end cost efficiency and synergy. Leverage cutting-edge technologies and digitization tools to optimize route planning with appropriate match to transit capacity.

Speaker #4: Establish a comprehensive end-to-end quality management service system with integrated platform service indicators for performance evaluations. Assign clear responsibilities and accountabilities, ensuring continued service leadership.

Speaker #4: Second, deepen last-mile capability build-out. Expand upgrades of sorting capabilities at outlets. Further implement direct linkage and incorporate local commercial opportunities. Hence, reduce delivery costs and enhance last-mile profitability through a higher retail parcel mix.

Speaker #4: Third, optimize network policies and incentivize mechanisms. While ensuring steady volume growth, enhance policy transparency and fairness. Implement relevant incentive mechanisms to cultivate intrinsic motivation.

Speaker #4: Fourth, advance end-to-end cost efficiency and synergy. Leverage cutting-edge technologies and digitization tools to optimize route planning with appropriate match to transit capacity. More scientifically plan for capital investment and utilization.

Sophie Li: More scientifically plan for capital investment and utilization, and improve coordination across all stages of operations. Help network partners to continuously improve their operational efficiency, reduce last mile pickup and delivery costs, and achieve higher earning. Fifth, safeguard fairness and grassroots interests. Improve communication and governance, promptly address genuine concern, and resolve real risk issues. Protect legitimate rights and interests of outlets and couriers, and maintain trust and confidence in our brand. The express delivery industry is currently undergoing a strategic shift from prioritizing high volume towards development in both quantity and quality. Against today's microeconomic backdrop, the increasing proportion of low priced parcel presents unique new challenges for top tier enterprises like ZTO. Facing this structural change, ZTO stays course in prioritizing quality of services and winning through efficiency.

More scientifically plan for capital investment and utilization, and improve coordination across all stages of operations. Help network partners to continuously improve their operational efficiency, reduce last mile pickup and delivery costs, and achieve higher earning. Fifth, safeguard fairness and grassroots interests. Improve communication and governance, promptly address genuine concern, and resolve real risk issues. Protect legitimate rights and interests of outlets and couriers, and maintain trust and confidence in our brand. The express delivery industry is currently undergoing a strategic shift from prioritizing high volume towards development in both quantity and quality. Against today's microeconomic backdrop, the increasing proportion of low priced parcel presents unique new challenges for top tier enterprises like ZTO. Facing this structural change, ZTO stays course in prioritizing quality of services and winning through efficiency.

Speaker #4: And improve coordination across all stages of operations. Help network partners to continuously improve their operational efficiency. Reduce last-mile pickup and delivery costs, and achieve higher earnings.

Speaker #4: Fifth, safeguard fairness and grassroots interests. Improve communication and governance. Promptly address genuine concerns and resolve real issues. Protect the legitimate rights and interests of outlets and couriers.

Speaker #4: And maintain trust and confidence in our brand. The express delivery industry is currently undergoing a strategic shift from prioritizing high volume towards development in both quantity and quality.

Speaker #4: Against today's microeconomic backdrop, the increasing proportion of low-priced parcels presents unique new challenges for top-tier enterprises like ZTO. Facing this structural change, ZTO stays focused on prioritizing the quality of services and winning through efficiency.

Sophie Li: Through continuous product upgrades and refined process management, we navigated a complex market environment, upheld high quality of service standards, and scaled up within reasonable earnings parameters. In the meantime, our network partners, baptized by fierce price competition, are actively innovating and forging last mile capability and business model. With more diverse revenue, better operational efficiency, and higher confidence in the success of operations, the franchising network is becoming even more resilient. Competition is an inevitable growth phase for majority of industries. Looking ahead, we firmly believe that by leveraging the vast potential of solid growth, foundation, and vibrancy of China's economy, ZTO can perpetuate our unique culture, rely on our robust infrastructure, and with our strong operational capabilities and sound financial strength, we are able to seize opportunities in the ongoing development of the express delivery and logistics industry.

Through continuous product upgrades and refined process management, we navigated a complex market environment, upheld high quality of service standards, and scaled up within reasonable earnings parameters. In the meantime, our network partners, baptized by fierce price competition, are actively innovating and forging last mile capability and business model. With more diverse revenue, better operational efficiency, and higher confidence in the success of operations, the franchising network is becoming even more resilient. Competition is an inevitable growth phase for majority of industries. Looking ahead, we firmly believe that by leveraging the vast potential of solid growth, foundation, and vibrancy of China's economy, ZTO can perpetuate our unique culture, rely on our robust infrastructure, and with our strong operational capabilities and sound financial strength, we are able to seize opportunities in the ongoing development of the express delivery and logistics industry.

Speaker #4: Through continuous product upgrades and refined process management, we navigated a complex market environment. We upheld high quality of service standards and scaled up within reasonable earnings parameters.

Speaker #4: In the meantime, our network partners, baptized by fierce price competition, are actively innovating and forging last-mile capability and business models with more diverse revenue.

Speaker #4: Better operational efficiency, with higher confidence in the success of operations, is making the franchising network even more resilient. Competition is an inevitable growth phase for the majority of industries.

Speaker #4: Looking ahead, we firmly believe that by leveraging the vast potential of a solid growth foundation and the vibrancy of China's economy, ZTO can perpetuate our unique culture, rely on our robust infrastructure, and, with our strong operational capabilities and sound financial strength, seize opportunities in the ongoing development of the express delivery and logistics industry.

Speaker #4: Together with all our partners, we can create greater value and bring happiness to more people through our products and services. Next, let's invite Ms. Huiping Yan to present the financial results.

Sophie Li: Together with all our partners, we can create greater value and bring happening to more people through our products and services. Next, let's invite Ms. Huiping Yan to present the financial results and guidance.

Together with all our partners, we can create greater value and bring happening to more people through our products and services. Next, let's invite Ms. Huiping Yan to present the financial results and guidance.

Speaker #4: and guidance. Thank

Huiping Yan: Thank you, Chairman Lai, and thank you, Sophie. Hello to everyone on the call. As I go through our financials, please note that I specifically mentioned all numbers quoted are in RMB, and percentage changes refer to year-over-year comparisons. Detailed financial and performance information, unit economics, and cash flow are posted on our website, and I'll go through some of the highlights here. In the third quarter, in alignment with government's appeal against involution, we reaffirmed our focus on quality, enhancing our core competencies to advance high-quality development. Our parcel volume reached 9.6 billion, which grew 9.8%. Adjusted net income increased 5% to RMB 2.5 billion. ASP for core express delivery business increased 1.7% or $0.02, and the breakdown are the $0.18 positive contribution from increase in KA volume, mainly comprised of headquarter contracted reverse logistics, products, and services.

Speaker #2: You, Qian 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 R&D, and percentage changes refer to year-over-year comparisons.

Speaker #2: Detailed financial and performance information in economics and cash flow are posted on our website. I will go through some of the highlights here. In the third quarter, in alignment with the government's appeal against involution, we reaffirmed our focus on quality, enhancing our core competencies to advance high-quality development.

Speaker #2: Our parcel volume reached 9.6 billion, which grew 9.8%. Adjusted net income increased 5% to $2.5 billion. The ASP for our core Express Delivery business increased 1.7%, or 2 cents. The breakdown is as follows:

Speaker #2: 18 cents positive contribution from an increase in KA volume, mainly comprised of headquarters contracted reverse logistics products and services. This growth was partially offset by a 2 cent decrease due to lower average weight per parcel and a 14 cent reduction from higher volume incentives.

Huiping Yan: This growth was partially offset by a $0.02 decrease due to lower average weight per parcel and a $0.14 reduction from higher volume incentives. Total revenue increased 11.1% to $11.9 billion as a combined result of volume and price increase. Total cost of revenue was RMB 8.9 billion, which increased 21.4% as a blended result of significant increase in costs associated with non-E-commerce volume, relative to the rate of decrease in cost for E-commerce volume. From the overall unit cost perspective, Core Express Delivery business increased $0.09 to $0.91. Combined unit cost of sorting and transportation decreased 7.7%, or $0.05, for the quarter, benefiting from economies of scale and various productivity initiatives. Specifically, unit cost for line haul transportation decreased 11.5% to $0.34, thanks to enhanced route planning in conjunction with optimizing fleet operations.

This growth was partially offset by a $0.02 decrease due to lower average weight per parcel and a $0.14 reduction from higher volume incentives. Total revenue increased 11.1% to $11.9 billion as a combined result of volume and price increase. Total cost of revenue was RMB 8.9 billion, which increased 21.4% as a blended result of significant increase in costs associated with non-E-commerce volume, relative to the rate of decrease in cost for E-commerce volume. From the overall unit cost perspective, Core Express Delivery business increased $0.09 to $0.91. Combined unit cost of sorting and transportation decreased 7.7%, or $0.05, for the quarter, benefiting from economies of scale and various productivity initiatives. Specifically, unit cost for line haul transportation decreased 11.5% to $0.34, thanks to enhanced route planning in conjunction with optimizing fleet operations.

Speaker #2: Total revenue increased 11.1% to $11.9 billion, as a combined result of volume and price increases. Total cost of revenue was $8.9 billion, which increased 21.4%, as a blended result of a significant increase in costs associated with non-ecommerce volume, relative to the rate of decrease in costs for ecommerce volume.

Speaker #2: From the overall unit cost perspective, core Express Delivery business increased 9 cents to $0.91. The combined unit cost of sorting and transportation decreased 7.7%, or 5 cents, for the quarter, benefiting from economies of scale and various productivity initiatives.

Speaker #2: Specifically, unit cost for line haul transportation decreased 11.5% to $0.34, thanks to enhanced route planning in conjunction with optimizing fleet operations. Unit sorting cost remained stable at $0.25, due to improved labor efficiency through automation, offset by higher costs from new facilities that commenced operations in the quarter.

Huiping Yan: Unit sorting costs remained stable at $0.25 due to improved labor efficiency through automation, offset by higher cost from new facilities that commenced operations in the quarter. Unit KA cost increased $0.14, which is in line with KA volume growth. Gross profit decreased 11.4% to $3 billion, and gross margin rate dropped 6.3 points to 24.9%. SGNA excluding SBC grew 16.2% to RMB 633 million. SGNA expenses excluding SBC as a percentage of revenue slightly climbed to 5.3% compared to 5% in the previous quarter last year. In the same quarter last year, primarily due to higher depreciation and amortization expenses, income from operations decreased 15.4% to RMB 2.4 billion, and associated margin dropped 6.3 points to 20.3%. Operating cash flow was RMB 3.2 billion for the quarter, representing a 3.2% increase. Adjusted EBITDA decreased 4.2% to RMB 3.6 billion.

Unit sorting costs remained stable at $0.25 due to improved labor efficiency through automation, offset by higher cost from new facilities that commenced operations in the quarter. Unit KA cost increased $0.14, which is in line with KA volume growth. Gross profit decreased 11.4% to $3 billion, and gross margin rate dropped 6.3 points to 24.9%. SGNA excluding SBC grew 16.2% to RMB 633 million. SGNA expenses excluding SBC as a percentage of revenue slightly climbed to 5.3% compared to 5% in the previous quarter last year. In the same quarter last year, primarily due to higher depreciation and amortization expenses, income from operations decreased 15.4% to RMB 2.4 billion, and associated margin dropped 6.3 points to 20.3%. Operating cash flow was RMB 3.2 billion for the quarter, representing a 3.2% increase. Adjusted EBITDA decreased 4.2% to RMB 3.6 billion.

Speaker #2: Unit KA cost increased by $0.14, which is in line with KA volume growth. Gross profit decreased by 11.4% to $3 billion, and the gross margin rate dropped by 6.3 points to 24.9%.

Speaker #2: SG&A excluding SBC grew 16.2% to $633 million. SG&A expenses excluding SBC, as a percentage of revenue, slightly climbed to 5.3% compared to 5% in the previous quarter last year.

Speaker #2: In the quarter last year, primarily due to higher depreciation and amortization expenses, income from operations decreased 15.4% to $2.4 billion, and the associated margin dropped 6.3 percentage points to 20.3%.

Speaker #2: Operating cash flow was 3.2 billion for the quarter, representing a 3.2% increase. Adjusted EBITDA decreased 4.2% to 3.6 billion, capital expenditure for Q3 totaled 1.2 billion, and we anticipate our annual capex expenses in 2025 to be 5.5 to 6 billion.

Huiping Yan: Capital expenditure for Q3 totaled $1.2 billion, and we anticipate our annual CapEx expenses in 2025 to be RMB 5.5 to 6 billion. Now, moving on to our guidance, with visibility into the final quarter of the year, we are adjusting down the annual volume guidance to be in the range of 38.2 to 38.7 billion parcels, representing a year-over-year growth of 12.3% to 13.8%. Volume is critical to a scale-leveraged business and partner network. Stability is the foundation for sustainable, long-term growth of our company. As the macro environment continues to evolve and industry dynamics shift towards more orderly competition, we are confident in our ability to execute the overall corporate strategy, as well as tackling challenges in the near term. This concludes our prepared remarks. Operator, please open the line for questions. Thank you, thank you.

Capital expenditure for Q3 totaled $1.2 billion, and we anticipate our annual CapEx expenses in 2025 to be RMB 5.5 to 6 billion. Now, moving on to our guidance, with visibility into the final quarter of the year, we are adjusting down the annual volume guidance to be in the range of 38.2 to 38.7 billion parcels, representing a year-over-year growth of 12.3% to 13.8%. Volume is critical to a scale-leveraged business and partner network. Stability is the foundation for sustainable, long-term growth of our company. As the macro environment continues to evolve and industry dynamics shift towards more orderly competition, we are confident in our ability to execute the overall corporate strategy, as well as tackling challenges in the near term. This concludes our prepared remarks. Operator, please open the line for questions. Thank you,

Speaker #2: Now, moving on to our guidance. With visibility into the final quarter of the year, we are adjusting down the annual volume guidance to be in the range of 38.2 to 38.7 billion parcels, representing a year-over-year growth of 12.3% to 13.8%.

Speaker #2: Volume is critical to a scale-leveraged business, and partner network stability is the foundation for sustainable long-term growth of our company. As the macro environment continues to evolve and industry dynamics shift towards more orderly competition, we are confident in our ability to execute the overall corporate strategy as well as tackle challenges in the near term.

Speaker #2: This concludes our prepared remarks. Operator, please open the line for questions. Thank you.

Speaker #2: you. Thank

Operator: thank you.

Speaker #3: If you would like to ask a question, please press star, then one on your telephone keypad. If your question has been addressed and you'd like to remove yourself from the queue, please press star, then two.

Operator: If you would like to ask a question, please press Star then one on your telephone keypad. If your question has been addressed and you'd like to remove yourself from queue, please press Star then two. Once again, that is Star then one if you have a question. Our first question today comes from Ronald Keung with Goldman Sachs. Please go ahead.

If you would like to ask a question, please press Star then one on your telephone keypad. If your question has been addressed and you'd like to remove yourself from queue, please press Star then two. Once again, that is Star then one if you have a question. Our first question today comes from Ronald Keung with Goldman Sachs. Please go ahead.

Speaker #3: Once again, that is star then one if you have a question. And our first question today comes from Ronald Kyung with Goldman Sachs. Please go ahead.

Speaker #4: Yeah. Thank you, management. Two questions. One is about the industry structure and outlook. Given that we've seen growth convergence and pricing have stabilized temporarily, how should we think of the year ahead and the long-term market structure as we are still in a relatively fragmented industry landscape?

Huiping Yan: Thank you. Management, two questions. One is about the industry structure and outlook. Given that we've seen growth, convergence, and pricing have stabilized temporarily, how should we think of the year ahead and the long-term market structure as we are still in a relatively fragmented industry landscape? Second is about integrated logistics opportunities. Besides the express delivery, what are we doing on the higher end or overall supply chain logistics offering to provide a more integrated service to your customers? Thank you. Thank you very much for your question. The very first question is really related to the competitive and industry dynamics and where it's going. We believe that the scale and better services, as well as higher efficiency, cost effectiveness, will lead to greater opportunities.

Ronald Keung: Thank you. Management, two questions. One is about the industry structure and outlook. Given that we've seen growth, convergence, and pricing have stabilized temporarily, how should we think of the year ahead and the long-term market structure as we are still in a relatively fragmented industry landscape? Second is about integrated logistics opportunities. Besides the express delivery, what are we doing on the higher end or overall supply chain logistics offering to provide a more integrated service to your customers? Thank you.

Speaker #4: Second, regarding integrated logistics opportunities, besides Express Delivery, what are we doing on the higher end or overall supply chain logistics offering to provide a more integrated service to our customers?

Speaker #4: Thank

Huiping Yan: Thank you very much for your question. The very first question is really related to the competitive and industry dynamics and where it's going. We believe that the scale and better services, as well as higher efficiency, cost effectiveness, will lead to greater opportunities.

Speaker #1: Thank you very much for your question. The very first question is really related to the competitive and industry dynamics, and where it's going.

Speaker #1: We believe that the scale and better services, as well as higher efficiency and cost-effectiveness, will lead to greater opportunities. So, we have continuously focused on becoming the best version of ourselves because the future belongs to the stronger ones.

Speaker #1: Looking into the future, we will again continue to focus on now as we look forward. There are several things that we are continuously focusing on.

Speaker #1: The first one is to strengthen the competitive advantage of our core businesses, and there are three perspectives of three areas that we will be paying attention to.

Speaker #1: The first one is to strengthen the connectivity or relationship between the outlets and the couriers with our sortation center. It's mainly for the allocation of interest, allocation of roles and responsibilities, as well as rewards across these three points with better equity and equality.

Speaker #1: The second part is express delivery, which mainly serves the consumer market. We are leveraging the installed base and will have an opportunity to solve and bring solutions for the greater logistics market.

Speaker #1: Currently , we have expressed delivery . We have LTL business coaching in a warehouse , cloud operation as well as last mile outlets .

Speaker #1: We believe the competitive landscape will shift towards comprehensive capability focus. We will not only serve to see. We will also serve modern manufacturing and agriculture, as well as more specific scenarios such as bringing products and services from factories directly to consumers, and bringing agriculture products out of the field directly onto people's dinner tables.

Speaker #1: So for all these specific scenarios, we will participate with higher quality and higher efficiency, and this will lead to a differentiated competitive advantage in the future.

Huiping Yan: We have continuously focused on becoming the best of ourselves because the future belongs to the stronger ones. Looking into the future, we again will continue to focus on now as we look forward. There are several things that we are continuously focusing on. The first one is to strengthen the competitive advantage of our core businesses, and there are three perspectives or three areas that we will be paying attention to. The first one is to strengthen the connectivity or relationship between the outlets, the couriers, with our sortation center. It's mainly for allocation of interest, allocation of roles and responsibilities, as well as rewards across these all three points with better equity and equality. The second part is express delivery is mainly serving the to see consumers. We, leveraging the installed base, will have an opportunity to solve, bring solutions for greater logistic market.

We have continuously focused on becoming the best of ourselves because the future belongs to the stronger ones. Looking into the future, we again will continue to focus on now as we look forward. There are several things that we are continuously focusing on. The first one is to strengthen the competitive advantage of our core businesses, and there are three perspectives or three areas that we will be paying attention to. The first one is to strengthen the connectivity or relationship between the outlets, the couriers, with our sortation center. It's mainly for allocation of interest, allocation of roles and responsibilities, as well as rewards across these all three points with better equity and equality. The second part is express delivery is mainly serving the to see consumers. We, leveraging the installed base, will have an opportunity to solve, bring solutions for greater logistic market.

Speaker #1: For us .

Speaker #2: Here .

Speaker #3: Thank you. Our next question today comes from Kwan Within with Morgan Stanley. Please go ahead.

Speaker #4: Thank you . She's like 200 . The . Two . Q1 . You . Challenges in the near term . Near-term challenges that the .

Speaker #4: 2020 . Thank you , for taking my questions . I have two questions . The first one is about the anti-inversion . So do you have any comments on the anti-evolution potential impacts specifically on the outlook for market pricing ?

Huiping Yan: Currently, we have express delivery, LTL business, co chain in warehouse cloud operation, as well as last mile outlets. We believe the competitive landscape will shift towards comprehensive capability focused. We will not only serve to sea, we will also serve modern manufacturing, agriculture, as well as more specific scenarios such as bringing products and services from factory directly to consumers, bringing agriculture products out of the field directly onto people's dinner table. For all these specific scenarios, we will participate with higher quality, higher efficiency, and this will lead to a differentiated competitive advantage in the future for us.

Currently, we have express delivery, LTL business, co chain in warehouse cloud operation, as well as last mile outlets. We believe the competitive landscape will shift towards comprehensive capability focused. We will not only serve to sea, we will also serve modern manufacturing, agriculture, as well as more specific scenarios such as bringing products and services from factory directly to consumers, bringing agriculture products out of the field directly onto people's dinner table. For all these specific scenarios, we will participate with higher quality, higher efficiency, and this will lead to a differentiated competitive advantage in the future for us.

Speaker #4: We have noticed that the company's guidance for the first quarter of volume this year implies quite a wide range of growth outlook.

Speaker #4: What's the consideration behind this outlook ? Specifically on the just mentioned , there are some considerations of near-term challenges . What's what's these near-term challenges and what's what's the outlook for next year ?

Speaker #4: And my second question is about a recent news story talking about that. Regulators had a conversation with Aetos management regarding its network management.

Speaker #4: So, are there any details that can be shared? And are there any potential impacts that we should expect? Thank you.

Speaker #5: For the Q2 earnings call, you should know that ginseng has been a topic of interest. You are wishing to hear more about it.

Operator: Thank you. Our next question today comes from Quan Weifan with Morgan Stanley. Please go ahead.

Huiping Yan: Thank you.

Qianlei Fan: Thank you.

Weifan Quan: Challenges in the near term, near term the challenges. Thank you, management, for taking my questions. I have two questions. The first one is about the Anti-Involution. Do you have any comments on the Anti-Involution's potential impact, specifically on the outlook for market pricing? We have noticed that the company's guidance on volume for the fourth quarter of this year implies a quite wide range of growth outlook. What is the consideration behind this outlook? Specifically, Ms. Yan just mentioned there are some considerations of, like, near term challenges. What are these near term challenges, and what is the outlook for next year? My second question is about recent news talking about that regulators had a conversation with ZTO's management on its network management. Is there any details that could be shared, and is there any potential impacts we should be expecting?

Challenges in the near term, near term the challenges. Thank you, management, for taking my questions. I have two questions. The first one is about the Anti-Involution. Do you have any comments on the Anti-Involution's potential impact, specifically on the outlook for market pricing? We have noticed that the company's guidance on volume for the fourth quarter of this year implies a quite wide range of growth outlook. What is the consideration behind this outlook? Specifically, Ms. Yan just mentioned there are some considerations of, like, near term challenges. What are these near term challenges, and what is the outlook for next year? My second question is about recent news talking about that regulators had a conversation with ZTO's management on its network management. Is there any details that could be shared, and is there any potential impacts we should be expecting?

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Huiping Yan: Thank you. Yes, Sadi. Fan hui. Guan. Thank you very much for your question.

Thank you.

Meisong Lai: Yes, Sadi. Fan hui. Guan.

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Speaker #1: Thank you very much for your question . Sustainability of the anti excessive competitive competition policy . I think it was related to your first question .

Speaker #1: Since August of this year, the anti-evolution policy has been progressively rolled out across most regions nationwide, aiming at rational recovery in pricing.

Speaker #1: And this policy directly addresses the pressure caused by excessive price competition. Since earlier this year, it calls for the industry to turn towards orderly competition and healthy development.

Speaker #1: So we expect this trend to continue, and the effort will also continue to take effect as the anti-evolution guidance continues to take effect.

Speaker #1: Industry overall attention is shifting from high-volume growth focused to a combined effort in high-quality development as well as high volume, with greater emphasis on service quality and sustainable long-term viability.

Speaker #1: Once the assessment period concludes, we think market rates are expected to stabilize above at least the cost levels, promoting healthier competition.

Speaker #1: We also believe that the regulatory focus will continue to advocate high quality development and disciplined market practice . On one hand , policies will continue to encourage companies to build competitive advantages through innovation , technology , effective managerial skills , and services .

Speaker #1: On the other hand, regulators will remain vigilant in intervening as needed to seize practices that could harm grassroots interests or disrupt social stability.

Huiping Yan: Thank you very much for your question.

Speaker #1: Protecting sustainable long-term growth as an industry leader, CTOs' quality-first and balanced development strategy is fully aligned, and we are engaged with the regulatory guidance. We view it as a growth opportunity and will take proactive steps to provide a model effect for the sector.

Sophie Li: Some.

Some.

Huiping Yan: Sustainability of the anti excessive competition policy I think was related to your first question. Since August of this year, the anti involution policy has been progressively rolled out across most regions nationwide, aiming at rational recovery in pricing, and this policy directly addressed the pressure caused by excessive price competition since earlier this year. It calls for the industry to turn towards orderly competition and healthy development. We expect this trend to continue, and the effort will also continue to take effect. As the anti involution guidance continues to take effect, industry overall attention is shifting from high volume growth focused to combined effort in high quality development as well as high volume, with greater emphasis on service quality and sustainable long term viability. Once the assessment period concludes, we think market rates are expected to stabilize above at least the cost levels, promoting healthier competition.

Sustainability of the anti excessive competition policy I think was related to your first question. Since August of this year, the anti involution policy has been progressively rolled out across most regions nationwide, aiming at rational recovery in pricing, and this policy directly addressed the pressure caused by excessive price competition since earlier this year. It calls for the industry to turn towards orderly competition and healthy development. We expect this trend to continue, and the effort will also continue to take effect. As the anti involution guidance continues to take effect, industry overall attention is shifting from high volume growth focused to combined effort in high quality development as well as high volume, with greater emphasis on service quality and sustainable long term viability. Once the assessment period concludes, we think market rates are expected to stabilize above at least the cost levels, promoting healthier competition.

Speaker #1: First, we will continue with investments in automation and digitization to strengthen our operational capabilities. Second, we will pay close attention.

Speaker #1: To gather constructive feedback from outlets and couriers to strengthen network stability. Third, we will pay strategic focus to benchmarking to provide a benchmark effect for higher quality development for the industry.

Speaker #1: As to the recent consultation by relevant government agencies, we believe that the recent regulation consultation is consistent with the anti-involution policies as well as our intention.

Speaker #1: It also is related to certain isolated cases arose from the network complaints . The express delivery industry is shifting from high volume growth to high quality development .

Huiping Yan: We also believe that the regulatory focus will continue to advocate high-quality development and disciplined market practice. On one hand, policies will continue to encourage companies to build competitive advantages through innovation, technology, effective managerial skills, and services. On the other hand, regulators will remain vigilant and intervene as needed to seize practices that could harm grassroots interests or disrupt social stability, protecting sustainable long-term growth. As an industry leader, ZTO's quality-first imbalance development strategy is fully aligned, and we are engaged with the regulatory guidance. We view it as a growth opportunity, and we'll take proactive steps to provide model effect for the sector. First, we will continue with investments in automation and digitization to strengthen our operational capabilities. Second, we will pay close attention to constructive feedback from outlets and couriers to strengthen network stability.

We also believe that the regulatory focus will continue to advocate high-quality development and disciplined market practice. On one hand, policies will continue to encourage companies to build competitive advantages through innovation, technology, effective managerial skills, and services. On the other hand, regulators will remain vigilant and intervene as needed to seize practices that could harm grassroots interests or disrupt social stability, protecting sustainable long-term growth. As an industry leader, ZTO's quality-first imbalance development strategy is fully aligned, and we are engaged with the regulatory guidance. We view it as a growth opportunity, and we'll take proactive steps to provide model effect for the sector. First, we will continue with investments in automation and digitization to strengthen our operational capabilities. Second, we will pay close attention to constructive feedback from outlets and couriers to strengthen network stability.

Speaker #1: At the same time . And this is the overall guidance with anti involution policy as well as the specific consultation it requires . All participants , especially DTO , as a leading player in this industry , to provide exemplified model effect .

Speaker #1: In the short term, we think that these consultation events serve as an important reminder for us, as well as we believe stress tests for our managerial attention and capabilities.

Speaker #1: We have taken the feedback constructively and seriously, and are treating it as a catalyst for further improvements internally. We have thoroughly reviewed our system in feedback, as well as providing greater visibility and timely feedback in addressing specific issues.

Speaker #1: In the long run , we believe that proactively embracing and leading this high quality transformation not only is consistent with our regulatory and market expectations expectations , but also builds .

Huiping Yan: Third, we will pay strategic focus to benchmark to provide benchmark effect for higher quality development for the industry. As to the recent consultation by relevant government agencies, we believe that the recent regulation consultation is consistent with the anti involution policies, as well as our intention. It also is related to certain isolated cases arose from the network complaints. The express delivery industry is shifting from high volume growth to high quality development. At the same time, and this is the overall guidance with anti involution policy as well as this specific consultation, it requires all participants, especially ZTO as a leading player in this industry, to provide examples, amplified model effect. In the short term, we think that these consultation events serve as an important reminder for us, as well as we believe stress tests for our managerial attention and capabilities.

Third, we will pay strategic focus to benchmark to provide benchmark effect for higher quality development for the industry. As to the recent consultation by relevant government agencies, we believe that the recent regulation consultation is consistent with the anti involution policies, as well as our intention. It also is related to certain isolated cases arose from the network complaints. The express delivery industry is shifting from high volume growth to high quality development. At the same time, and this is the overall guidance with anti involution policy as well as this specific consultation, it requires all participants, especially ZTO as a leading player in this industry, to provide examples, amplified model effect. In the short term, we think that these consultation events serve as an important reminder for us, as well as we believe stress tests for our managerial attention and capabilities.

Speaker #3: Pardon me everybody . This is a conference operator . It appears the speaker line has disconnected . We're going to put the music back on here and we will restart here in just one When they moment .

Speaker #3: When they dial back in, thank you, everybody.

Speaker #6: Thank you .

Speaker #3: And pardon me everyone . This is the operator . We've reconnected . The speaker location . Please proceed with your answer .

Huiping Yan: We have taken the feedback constructively and seriously and are treating it as a catalyst for further improvements. Internally, we have thoroughly reviewed our system in feedback, as well as providing greater visibility and timely feedback in addressing specific issues. In the long run, we believe that proactively embracing and leading this high quality transformation not only is consistent with our regulatory and market expectations, but also build.

We have taken the feedback constructively and seriously and are treating it as a catalyst for further improvements. Internally, we have thoroughly reviewed our system in feedback, as well as providing greater visibility and timely feedback in addressing specific issues. In the long run, we believe that proactively embracing and leading this high quality transformation not only is consistent with our regulatory and market expectations, but also build.

Speaker #6: Thank you .

Speaker #1: So I will rewind just slightly where we got cut off in the longer term , we believe the proactively embracing and leading the high quality transformation and will not only be consistent with the regulatory intention and market expectations , but also build a more robust and sustainable collaborative model for us to work with all constituents in in our industry and in our end to end businesses .

Speaker #1: And this will help us attract higher-quality customers and partners, ensuring longer and sustainable growth. Thank you for your support.

Speaker #6: Question .

Speaker #3: Yes , ma'am . And our next question today comes from Tianrong Lü with UBS . Please go ahead .

Operator: Pardon me everybody, this is the conference operator. It appears the speaker line has disconnected. We're going to put the music back on here. We will restart here in just one moment when they dial back in. Thank you everybody.

Speaker #7: Hey . What ? You . You . Let me translate for myself . Thank you . Mr. Yan and Sophie for taking my question .

Speaker #7: My , my question is more about volume . As we know , as we noted that the industry has experienced more or less notable .

Speaker #7: Volume has slowed down recently, so I'm just curious about the underlying drivers behind that. It's more related to the pricing recovery we've seen recently. Additionally, how should we think about volume growth for next year?

Speaker #7: And also, any potential changes in the competitive landscape or competition dynamics, and volume slowdown going forward? Thank you so much.

Huiping Yan: Thank you.

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Operator: Pardon me everyone, this is the operator. We've reconnected the speaker location. Please proceed with your answer.

Huiping Yan: Thank you. I will rewind just slightly where we got cut off. In the longer term, we believe proactively embracing and leading the high quality transformation will not only be consistent with the regulatory intention and the market expectations, but also build a more robust and sustainable collaborative model for us to work with all constituents in our industry and in our end to end businesses. This will help us attract higher quality customers and partners, ensuring longer and sustainable growth. Thank you for your question.

Operator: Yes, ma'am. Our next question today comes from Tanrong Lua with UBS. Please go ahead.

Tanrong Lua: Jiang Shao. Let me translate for myself. Thank you, Ms. Lai, Ms. Yan, and Sophie for taking my question. My question is more about volume, as we noticed that the industry has experienced more or less notable, like, volume slowdown recently. Just curious about the underlying drivers. Perhaps is that more related to the pricing recoveries recently, and also how should we think about volume growth for next year, and also any potential changes in competitive landscape or competition dynamics, and or volume slowdown going forward. Thank you so much.

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Speaker #1: Yes, indeed. Thank you for your question. We have noticed a long-anticipated decline or deceleration in the industry. The recently announced October average growth of the industry is in the low single digits.

Speaker #1: And that's been not seen for a long period of time. So we think that the recent deceleration in the industry growth is primarily due to the price increase driven by the evolution anti-involution policy.

Huiping Yan: With. Yankee.

Meisong Lai: With. Yankee.

Speaker #1: This adjustment where overall logistic price has increased and has a greater impact on low margin and highly price sensitive e-commerce merchants , resulting in in a decline in that segment of the parcel .

Speaker #1: Overall, the sector's parcel volume mix is shifted again towards a better structure, with higher economics. Leading express delivery companies with stronger service capabilities and well-established product portfolios are poised to regain their competitive position.

Speaker #1: In other words , for those that typically gained volume from lower priced packages will be impacted , greater negatively . Looking ahead to next year , we expect the industry volume growth to perhaps stabilize in most most likely to stay around 10% .

Speaker #1: The sector is shifting away from a singular focus on volume growth towards higher quality, as well as quantity development. With market resources increasingly gravitating towards service quality and operational efficiency.

Speaker #1: The future reshaping of the competitive landscape will be driven by ongoing regulatory influence alongside corporate self-discipline and standardized operations, paving the way for a healthier competitive landscape.

Speaker #1: Landscape and sustainable long-term growth.

Speaker #3: Thank you, and our next question comes from Eugene Lin with Securities. Please go ahead.

Sophie Li: Yes indeed.

Huiping Yan: Yes indeed.

Huiping Yan: Thank you for your question. We have noticed a long-absent decline or deceleration in the industry. The recently announced October average growth of the industry is low single digit, and that's not been seen for a long period of time. We think that the recent deceleration in industry growth is primarily due to the price increase driven by the anti-involution policy. This adjustment, where overall logistics price has increased, has a greater impact on low-margin and highly price-sensitive e-commerce merchants, resulting in a decline in that segment of the parcel. Overall, the sector's parcel volume mix has shifted again towards a better structure, with higher economics leading express delivery companies with stronger service capabilities and well-established product portfolios are poised to regain their competitive position.

Speaker #7: Liu Jin .

Speaker #8: Chang . Your . So first of all , first of all , thank you for taking my questions . And I guess my first question will go with the cost reduction .

Speaker #8: So if the anti-evolution policy continues into the sixth, and considering that the industry CapEx of 2005 would actually be set for a higher growth rate in expectation.

Huiping Yan: In other words, for those that typically gained volume from lower priced packages, it will be impacted greater negatively. Looking ahead to next year, we expect the industry volume growth to perhaps stabilize and most likely to stay around 10%. The sector is shifting away from a singular focus on volume growth towards higher quality, as well as quantity development. With market resources increasingly gravitate towards service quality and operational efficiency, the future reshaping of the competitive landscape will be driven by ongoing regulatory influence, alongside corporate self-discipline and standardized operations, paving the way for a healthier competitive landscape and sustainable long-term growth.

In other words, for those that typically gained volume from lower priced packages, it will be impacted greater negatively. Looking ahead to next year, we expect the industry volume growth to perhaps stabilize and most likely to stay around 10%. The sector is shifting away from a singular focus on volume growth towards higher quality, as well as quantity development. With market resources increasingly gravitate towards service quality and operational efficiency, the future reshaping of the competitive landscape will be driven by ongoing regulatory influence, alongside corporate self-discipline and standardized operations, paving the way for a healthier competitive landscape and sustainable long-term growth.

Speaker #8: So with possibly this bring any challenges in our cost reduction , if a lower parcel growth shown in 2006 and as a result , could we be shared more sunlight on the cost improvement in 2026 ?

Speaker #8: And the second question would be regarding to the competition structure . So as we can see that after setting price for some , for some parcels in the major markets , for example , like in Guangdong and , and other primates , with lead to some more focus shift of the focus on the price competition from the lower kilogram range to the higher one .

Speaker #8: And I guess that's my question. Thank you.

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Operator: Thank you. Our next question today comes from Woo Jin Lim with CPX Securities.

Huiping Yan: The next, please go ahead. Yeah.

The next, please go ahead.

[Analyst] (CPX Securities): Yeah.

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Tanrong Lua: First of all, thank you for taking my questions. I guess my first question would go with the cost reduction. If the anti-involution policy continues in 2026, considering that the industry CapEx of 2025 would be actually set for a higher growth rate in expectation, would this possibly bring any challenges in our cost reduction? If a lower parcel growth is shown in 2026, as a result, could we be shedding more light on the cost improvement in 2026? The second question would be regarding the competition structure.

First of all, thank you for taking my questions. I guess my first question would go with the cost reduction. If the anti-involution policy continues in 2026, considering that the industry CapEx of 2025 would be actually set for a higher growth rate in expectation, would this possibly bring any challenges in our cost reduction? If a lower parcel growth is shown in 2026, as a result, could we be shedding more light on the cost improvement in 2026? The second question would be regarding the competition structure.

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Tanrong Lua: As we can see, after setting price for some parcels in the major markets, for example like in Guangdong, Yew, and other premise, would this lead to some more shift of the focus on the price competition from the lower kilogram range to the higher one? I guess that's my question. Thank you.

As we can see, after setting price for some parcels in the major markets, for example like in Guangdong, Yew, and other premise, would this lead to some more shift of the focus on the price competition from the lower kilogram range to the higher one? I guess that's my question. Thank you.

Speaker #5: To . The .

Huiping Yan: Good. Thank you very much for your question. Yes, ZTO has always been focusing on our cost efficiency. In the first development of our company, because of our attention in capacity and infrastructure development, our competitive cost advantage is very apparent. As the industry progressed, you saw that various other peers have also invested in facilities, equipment, as well as transportation capabilities. You saw that our competitive cost advantages across the industry are becoming more close to each other. We think that the focus now is not just in transit and line haul. Out of the four segments of the end-to-end services, we have collection as well as delivery. For the total end-to-end cost reduction or cost efficiencies, we have initiated work in, for example, the three plus one effort.

Speaker #1: very much for Thank you your question . Yes . Zto has has always been focusing on our cost efficiency . In the first development of our company , we because of attention , because of our attention in capacity and infrastructure development , our competitive cost advantage is very apparent .

Speaker #1: And then, as the industry progressed, you saw that various other peers have also invested in facilities, equipment, as well as transportation capabilities.

Speaker #1: You saw that our competitive cost advantages across the industry is becoming more close to each other . We think that the focus now is not just in transit and linehaul , because out of the four segments of the end to end services , we have collection as well as delivery for the total end to end cost reduction or cost efficiencies .

Meisong Lai: Good.

Huiping Yan: Thank you very much for your question. Yes, ZTO has always been focusing on our cost efficiency. In the first development of our company, because of our attention in capacity and infrastructure development, our competitive cost advantage is very apparent. As the industry progressed, you saw that various other peers have also invested in facilities, equipment, as well as transportation capabilities. You saw that our competitive cost advantages across the industry are becoming more close to each other. We think that the focus now is not just in transit and line haul. Out of the four segments of the end-to-end services, we have collection as well as delivery. For the total end-to-end cost reduction or cost efficiencies, we have initiated work in, for example, the three plus one effort.

Speaker #1: We have initiated work in, for example, the three plus one effort, so as to continue to improve the cost equation across the whole process.

Speaker #1: We've invested in technology invested in higher efficiency in matching the capacity as well as the demand for capacity . We have helped our network partners to improve their automation capabilities as well to improve their efficiency , allowing , for example , the couriers to have more time in focusing on their delivery work at the same time reducing the outlets overall .

Speaker #1: Last mile cost . We do believe that with the existing Ma operational layout , the cost advantage will eventually diminishing . However , with increasing attention to the end to end all segments coordination in integration .

Speaker #1: In reducing cost , improve efficiency , not only the transit and sortation segment of our business will continue to lead in cost as well as cost efficiency , as well as our network partners will gain advantage in becoming the lowest cost in the last mile , as well as the pickup we so hence have high confidence in maintaining our cost leadership going forward .

Speaker #1: And then the second part of your question relates to what we have observed going forward in the smaller packages becoming a lesser component of the total volume.

Speaker #1: So what we do , we will based on the capacity layout of our whole network , appropriately allocate and matching the resources . For example , in the middle and the western part of our network , we should be able to gravitate more towards some policies for higher weight and from overall perspective , we believe we do have high confidence in managing the policy in addressing this shift in the mix of our volume , we again will continue to focus on our balanced approach in developing volume scale and the reasonable profit level .

Huiping Yan: As generation to continue to improve the cost equation across the whole process, we invested in technology, invested in higher efficiency in matching the capacity as well as the demand for capacity. We have helped our network partners to improve their automation capabilities as well, to improve their efficiency, allowing, for example, the couriers to have more time in focusing on their delivery work, at the same time reducing the outlets' overall last mile cost. We do believe that with the existing operational layout, the cost advantage will eventually be diminishing.

As generation to continue to improve the cost equation across the whole process, we invested in technology, invested in higher efficiency in matching the capacity as well as the demand for capacity. We have helped our network partners to improve their automation capabilities as well, to improve their efficiency, allowing, for example, the couriers to have more time in focusing on their delivery work, at the same time reducing the outlets' overall last mile cost. We do believe that with the existing operational layout, the cost advantage will eventually be diminishing.

Speaker #1: All under the premises of high quality of product and services. Going forward.

Speaker #3: Thank you and apologies. Please proceed.

Speaker #1: Yeah, we believe this will conclude our call for today. Again, thank you, everybody, for joining us, and we look forward to having further discussions with you offline.

Huiping Yan: However, with increasing attention to the end-to-end all segments coordination and integration in reducing cost, improved efficiency, not only the transit and sortation segment of our business will continue to lead in cost efficiency, our network partners will gain advantage in becoming the lowest cost in the last mile as well as the pickup. We so hence have high confidence in maintaining our cost leadership going forward. The second part of your question relates to what we will, what we have observed going forward in the smaller packages becoming lesser component of the total volume. What we do, we will, based on the capacity layout of our whole network, appropriately allocate and match the resources. For example, in the middle and western part of our network, we should be able to gravitate more towards some policies for higher weight.

However, with increasing attention to the end-to-end all segments coordination and integration in reducing cost, improved efficiency, not only the transit and sortation segment of our business will continue to lead in cost efficiency, our network partners will gain advantage in becoming the lowest cost in the last mile as well as the pickup. We so hence have high confidence in maintaining our cost leadership going forward. The second part of your question relates to what we will, what we have observed going forward in the smaller packages becoming lesser component of the total volume. What we do, we will, based on the capacity layout of our whole network, appropriately allocate and match the resources. For example, in the middle and western part of our network, we should be able to gravitate more towards some policies for higher weight.

Huiping Yan: From an overall perspective, we believe we do have high confidence in managing the policy in addressing this shift in the mix of our volume. We again will continue to focus on our balanced approach in developing volume scale, and the reasonable profit level, all under the premises of high quality of product and services going forward.

From an overall perspective, we believe we do have high confidence in managing the policy in addressing this shift in the mix of our volume. We again will continue to focus on our balanced approach in developing volume scale, and the reasonable profit level, all under the premises of high quality of product and services going forward.

Operator: Thank you. Apologies, please proceed.

Huiping Yan: Yeah, we believe this will conclude our call for today. Again, thank you everybody for joining us, and we look forward to have further discussions with you offline.

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

Huiping Yan: Sam.

Sam.

Q3 2025 ZTO Express (Cayman) Inc Earnings Call

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