ZTO Express Cayman [ZTO] Conference call transcript for 2022 q1
2022-05-26 01:01:02
Fiscal: 2022 q1
Operator: Good day. And welcome to the ZTO Express First Quarter Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Huiping Yan, Chief Financial Officer. Please go ahead.
Huiping Yan : Thank you, operator may. Hello, everyone. Thank you for joining us today. The company's results and an investor relations presentation are released earlier today and are available on the company's website at ir.zto.com. On a call today from ZTO, or Mr. Meisong Lai, Chairman and Chief Executive Officer and I, Huiping Yan, Chief Financial Officer, Mr. Lai will go through his prepared remarks highlighting business operations, and I will then go through the financials and guidance. We will both be available to answer your question during the Q&A session that follows. As a reminder, 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 view and expectations of the market and operating conditions that 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, and may cause the company's actual results, performances or achievements to differ materially from those in the forward-looking statements. Further information regarding these in other risks, uncertainties and factors are included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligations 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 go through his prepared remarks in its entirety in Chinese before I translate for him into English. Mr. Lai, please go ahead.
Meisong Lai : Thank you, Chairman. Hello, everyone. And thank you for joining us today. In the first quarter of 2022, ZTO delivered a parcel volume of 5.2 billion, which increased 16.8% expanding our market share by 1.2 points to 21.6%. Adjusted net income grew 34.9% to RMB1.1 billion. Starting in early March, Omicron infections that erupted and spread across the country disrupted the industry's growth momentum, causing delays in stoppage in express delivery industry. Quarterly parcel volume level was below expectations. During this extraordinary time, ZTO headquarter and our provincial operations coordinated action plans and effort, tightened prevention measures, and maintained continued operations wherever possible. We carried out stringent safety protocols while continued to focus on achieving goals and objectives that we set forth in the beginning of the year. First, we prioritized on protecting the rights and interests of the grassroots, and insisted on passing through the increase in delivery free in its entirety into the hands of delivery outlets, and couriers. Through supportive measures, such as detailed standardized pickup and delivery fee schedule, and equitable reallocation procedures, added lending for designated prevention use renewal of couriers accidental group insurance in special care funds. We strengthened the network foundation that in ensuring its resilience and vitality. Second, we raised bars for comprehensive outlet management. On an outlet-by-outlet, from establishing direct routes to and from sorting centers to improving timeliness of parcel bond for urban and rural areas to enhancement of managerial effectiveness. We are fine tuning the Matrix Model of management for tier one partner outlets. As a result, more appropriate policies and performance measures are put in place so that our network of outlets can become more stable, profitable, and sustainable. Third, we accelerated the digitization initiatives to streamline end-to-end process, allowing close monitoring and coordination of all critical stages of operations to drive effectiveness and efficiencies. Technology solutioning was there to provide more scientific approach to maximize resource utilization for the activity game, and safe operations. Development of an operating system from outlet perspective, have transformed previous toolkit applications into an integrated process driven task management framework. Fourth, we improved the performance evaluation and associated reward and reprimand mechanisms. During the COVID disruption, more user-friendly scorecards were set up to ease burden and boost confidence for our network partners. We designed diversified products and services to meet varying customer demands. Our presence among mainstream ecommerce volume continued to increase as we introduced more time definite products, such as premium and standard as part of the effort for product enrichment. The higher end service that was nicknamed as [indiscernible], and other expanded cross border capabilities are all being developed and tested. Recently, sorting centers and service outlets in the affected areas have been gradually resuming operations, while outbreaks across the nation become more and more under control. Contrast to a year-on-year decline of nearly 12% In April, express parcel volume recorded a 2.3% increase during the May holiday break for the industry. Government agencies have been paying close attention to logistics industries, and proactively working with companies on their day-to-day challenges by coordinating policies from different governing bodies, sorting through conflicts and blockages. ZTO Shanghai was among the first few logistic companies to restart operations in early May. Volume and timeliness are gradually trending normal. Before the goal of dynamic zeroing is achieved, we expect prevention procedures will become part of the daily norm. The central government has established clear directives that the epidemic must be contained. The economy must be stabilized and growth must be safe. Express delivery companies will continue to play an active role in ensuring smooth and safe logistic operations, which will support the economic growth. We anticipate that the consumer demand will remain strong. We believe in our competitive advantages with scale and efficiency. And we are confident in our entire network’s ability to endure hardship and overcome challenges. Looking ahead, routines need to be established for prevention, on one hand, while we firmly implement our strategic goals through data driven management, precise policy design, and timely adjustments to enhance productivity and profitability. We aim to seize rebound opportunities and re-establish momentum so as to accelerate our market share gain in earnings growth. May 8 marked ZTO’s 20th anniversary, in 20 year year-to-years [ph] against all odds, we went from keeping up to catching up to taking the lead. Achieving all records we set for ourselves in both quality and quantity. All of our past success came not only from the hard work of our people, but also from the support of the time in history and the entire society. We do not take for granted of what we have. And we will journey forward with gratitude. Today, riding the rising tide, we are determined to buckle details and enforce execution. Tomorrow, we will hang tight to our aspiration in belief, secure our core competencies in enhanced quality, develop comprehensive might that extend to equal advantages, which will enable us to bring happiness to more people through our services. Now allow me to take us through the financial results. As I go through financials, please know that unless specifically mentioned, our numbers quoted are in RMB and percentage changes refer to year-over-year comparisons. A detailed analysis of a financial performance unit economics and cash flows are posted on our website. And I'll only go through some of the highlights here. In the first quarter ZTO maintained the momentum of profitable growth. Our parcel volume grew 16.8% to 5.2 billion, expanding the quarterly market share by 1.2 points to a record 21.6%. With steady execution of our strategy, the income from operations robustly increased 76.4% to RMB1.4 billion and associated margin grew 4.3 points to 14.1%. Total revenue increased 22.1% to RMB7.9 billion. ASP for the core express delivery business increased 8.5% or RMB0.11 cents, thanks to a healthier competitive dynamics. There is an average of RMB0.15 to RMB0.20 per package delivery fee increase since fourth quarter last year. Total cost of revenue was RMB6.3 billion, which increased 16.9%. Overall unit cost of revenue for the core express delivery business increased by 3.6% or RMB0.04. More specifically, line haul transportation costs per parcel decreased to 0.2% to RMB0.57 as a combined results of surging few cost offset by cost efficiency gains from increased use of high capacity trailer trucks, improved load rate and better route planning. Units sorting costs increased 6.5% to RMB0.36 driven by increased labor rates and higher depreciation and amortization charges, not entirely absorbed by increased level of automation. Lower than expected volume dampened our scale advantage for the quarter. And as we look forward to volume returning to normal, our cost advantage and scale efficiencies will continue to demonstrate. Gross profit increased 47.7% to RMB1.6 billion as a result of increased volume in ASP. Gross margin rate improved 63.6 points to 20.5%. SG&A expense excluding share based compensation as a percentage of revenue dropped 0.2 points to 5.6%, demonstrating a stable and sound corporate cost structure. Adjusted net income increased 34.9% to RMB1.1 billion and associated margin grew 1.2 points to 13.3%. Our operating cash flow grew 131.8% to RMB1.1 billion, capital expenditure totaled RMB1.8 billion, which is at a lower level as planned. Now let's talk about the guidance. The spread of Omicron caused the derail of the entire industry's growth momentum starting in March. And we are slowly but surely coming out of it. The industry declined 11.9% year-over-year for the month of April. But the good news is that in May, we saw daily volume reached over 300 million, especially during and after the three to four day May holiday break, volume growth has come back to positive. Given our visibility into the month of May, we estimated the cumulative volume increase for the first half of the year to be around 4.5% to 5% for the industry and around 9% to 11% for ZTO. There is a fair chance that an orderly recovery will take place and the economy would resume growth. Accordingly, the express delivery industry could also continue its current trajectory and get back to a healthy click of around 10% to 13% of growth for the second half, which means -- which means the industry for the whole year could grow between 7.5% to 10%. Now taking to these consideration, as well as the current market condition, plus the COVID uncertainties that still remain, the company revised its annual parcel volume projection to be in the range of RMB24.96 billion to RMB25.86 billion, representing a 12% to 16% increase year over year. Relative to the entire industry performance, the company is confident to achieve one percentage point or more increase in its market share gain for the entire year. These estimates represent management’s current and preliminary review, which are subject to change. Now this concludes our prepared remarks. Operator please open the call for questions. Thank you.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Thomas Chong the Jefferies. Please go ahead.
Operator: [Operator Instructions] Our next question will come from Tian Hou with TH Capital. Please go ahead.
Operator: Our next question will come from Frank Du with DLR [ph] Capital Markets. Please go ahead.
Operator: Our next question will come from Parash Jain with HC Hong Kong. Please go ahead.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Yan for any closing remarks.
Huiping Yan : Thank you, everyone for your interest and continued support of our business. The fact that the Omicron disrupts the business process is, I think largely behind us and we are optimistic about the growth prospects of the Chinese economy as well as the express delivery industry. With our advantages clearly distinguished from the rest in our capacity and efficiency gains that are still underway, with the benefit of digitized approach in proper and more detailed management in finding productivity as well as efficiency. So we are confident in the growth of our business in terms of volumes, as well as our ability to deliver even faster growth in our profitability. So with that, again, thank you everyone for joining today's call. We look forward to speaking with you individually soon. Thank you.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
