ZTO Express Cayman [ZTO] Conference call transcript for 2022 q3
2022-11-21 23:35:27
Fiscal: 2022 q3
Operator: Good day. And welcome to the ZTO Express Third Quarter Financial Results Conference Call. All participants will be in 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 Sophie Li, Director of Capital Markets. Please go ahead.
Sophie Li: Thank you, operator. Hello, everyone and thank you for joining us today. The company's results and an investor relations presentation were released earlier today and are available on the company's IR website at ir.zto.com. On the call today from ZTO are Mr. Meisong Lai, Chairman and Chief Executive Officer, Mrs. Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights then Miss Yan who will go through the financials and guidance. They both will be available to answer your question during the Q&A session that follows. I remind you that this call may contain forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market 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, which may cause the company's actual results, performances or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties and factors is 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 breeze through his prepared remarks in its entirety in Chinese before I translate for him into English. Welcome Lai.
Meisong Lai: [Foreign Language] Hello everyone and thank you for joining us today. For the third quarter of 2022, ZTO delivered a parcel volume of 6.37 billion, which increased 11.7% year-over-year expanding our market share by 1.3 point [ph] to 23.1%. Through customer satisfaction scores hitting new records, and our end to end tap limits and the 72 hour time definitiveness continue to rent top a moment here. Meanwhile, we achieved RMB1.87 billion of adjusted net income, growing our bottom line by 63.1% year-over-year. In the third quarter, due to pandemic and other external factors, the overall growth rate of the Express industry decelerated. ZTO focused on being the best weakened through wider implementation of detail oriented and data driven process management and solution -- not only did we enhance operational excellence, but also build revenues to realize optimistic as well as the – systemic growth financial while ensuring the normalized pandemic prevention and control, we still was able to lean on both volume and price for the third consecutive quarter and further widen the lead over our peers in the market shares serving quality and profitability. Over the past few quarters, we have achieved remarkable results improving the operational excellence and earnings quality. First of all, by combing through key a customer accounts and modifying or responding network policies we eliminated unnecessary loss making contracts and at the same time enhance the competitiveness of our own lives. Second, with further refinement and wider utilization of our daily volume cost of profit dashboard tools within the visibility at the parcel flow level with a lot of to recalibrate cost of coverage and pricing expectations, therefore reduce growth of policy making. Third, with further standardization of operating protocols, we find the KPIs and optimizing digitization capabilities. We can now track and analyze trend statements working process by segments, which includes activities. Therefore improve effectiveness of work shifts are designed. We've all -- it more time to increase utilization of labor facilities and transportation resources, reduce better packages and improve end to end head winds. The overall operational quality and efficiency was intense. While optimizing our own operations, we continue to focus on empowering our network partners improve their comprehensive capital thus stimulating market share gain. We have gradually extended our volume cost to profits in network partners. With first real time data to always encourage and assist them organized and great financial results help always with low and negative growth to identify and solve problems from bottom up, and ultimately through market competitiveness. We further simplified partner fee policies and make them more equitable, as parents in uniform. We've tapped into the incremental market share potential through interest alignment and resource sharing amount pickup and delivery outlets, and effectively increased customer acquisition and total profit at both marketing and fulfillment. Ensuring the service quality throughout all stages of pick up, quotations, transportation and delivery is a precondition for expanding market share and increasing profits. In the past few quarters, we have continuously refined KPIs and improved the way words and recommend mechanisms and tackled recourse to problems in a timely manner with integrated effort from all key segments of the entire network. In the third quarter, our leading Cainiao index scores widened among peers with effective [Indiscernible] brand estimation and service representation. Fourth quarter thus far, the external factors including pandemic situations continue to impact consumption level was lower than expectations and craft industry growth was under pressure. However, we have been continually focusing on the following priorities around our primary goal of salaries and market extensions, supported by employing high quality focus. First of all, strict accountability for operational safety pandemic prevention and control to ensure the smooth flow of packages. Second, we have managed our network infrastructure capability in an orderly manner, particularly helping to always to plan and establish accounts such as delivery teams which are in sync with entire transit and sporting platform. Third, further implementation of network management tools, including those of last mile policies, which, without compromising the vested interests of the policy owners, restore the -- direct access to market pricing, and insights to acquire new retail customers. Fourth, accelerated expansion of quality persons with diversified capabilities at the [Indiscernible] that go beyond reducing pickup and delivery costs and provide community services in addition to on-demand delivery to door therefore enrich last mile customer experiencing for ends to come. Fifth, designing and the promotion of eco diversified products and services, which rely on our differentiated and scale and of quality events. For example, standard time definite service to meet customer needs. Looking ahead, the growth prospects of financial plus delivery still remains positive. The divergence of key players have gradually become obvious and is clear. For the past 20 years, we still have food and relied on its shared success culture, innovative DNA, it's networks with the stability and its unsurpassed scale and efficiency to stand apart from the rest. Coupled with increasing effort on management, upgrade and rigorous work ethics and finances, we are confident to achieve our primary goal of accelerated market share expansion with improving service quality and profitability to usher in daily parcel volume that would exceed 100 million. Now I’ll pass to our CFO Miss Yan to take us through our financial results.
Huiping Yan: Thank you Chen and Li. And hello to everyone on the call. As I go through our financials please note that unless specifically mentioned, our numbers quoted are in RMB, and percentage changes refer to year-over-year comparisons. Detailed analysis of 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 third quarter, despite the recurrence of pandemic shutdowns or restrictions, and the weaker than expected economic outcome, ZTO delivered strong performances in both market share gain and profit expansion. Both supported by improving quality of services. Parcel volume increased 11.7%, which helped to expand our market share by 1.3 points to reach 22.1%. The adjusted net income grew 63.1% to RMB1.9 billion. Total revenue increased by 21% to RMB8.9 billion. ASP for the core Express Delivery business increased 9.9% or 12 cents. While pricing became more stabilized, we continue to optimize our policy effectiveness by enhancing volume mix, as well as helping our network partners and outlets to strengthen their competitiveness and profitability. Total cost of revenue was RMB6.5 billion which increased 11.6%. Overall unit cost of revenue for the core express delivery business increased 12.6% or 1 cent. More specifically, line haul transportation costs per parcel decreased 2.2% to 49 cents, where rising fuel costs are offset by cost efficiency gain from increased use of high capacity trailer trucks, improved lower grade and better route planning. Unit sorting cost increased 5.8% to 30 cents, driven by increased labor costs and higher depreciation and amortization charges. We continue to raise our level of automation in response to increasing human resource costs. Gross Profit increased 55.9% to RMB2.4 billion benefited from both volume and ASP increases on top of meaningful cost efficiency despite lower than expected volume. Gross Profit Margin rate increased 6.1 point 27.3%. SG&A expenses as a percentage of revenue dropped 0.3 points to 4.9% demonstrating continued scale leveraged by our corporate cost structure. Income from operations increased 59.9% to RMB2.2 billion and associated margin rate grew 5.9 point to 24.3%. Operating cash flow grew 58% to RMB2.8 billion. Our capital expenditure totaled RMB2.1 billion. We're hopeful that COVID restrictions would gradually ease off and macroeconomic condition would improve in 2023. We believe that China's express delivery industry has great potential to grow for the longer term, and ZTO would remain strategic focus on market share gain upon achievement of targeted profit level. All of these will be made possible through continued effort on standardization and digitization, where data analytics and process improvements will lead to further upgrade of our leading operating efficiency and quality of earnings. Taking into account the current market condition, the company revises its previously stated annual guidance. Parcel volume for 2022 is expected to be in the range of RMB24.3 billion to RMB24.7 billion representing a 9% to 11% increase year-over-year. Meanwhile, the company remains confident in achieving no less than one percentage point increase in its market share for the entire year of 2022. These estimates represent our current view, 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 Ronald Keung with Goldman Sachs. Please go ahead.
Operator: Our next question will come from Liu Su with Citi. Please go ahead.
Operator: Our next question will come from Frank Yip with Daiwa Capital Markets. Please go ahead.
Operator: Our next question will come from Thomas Chong with Jefferies. Please go ahead.
Operator: Our last question will come from Frank [Indiscernible]. Please go ahead.
Huiping Yan: Once again, thank you everybody for participating on our call. The company is in a great shape. We are taking the opportunity to better ourselves while the external micro environment continued to improve and we are hopeful the rebound will certainly arrive in due time. Another thing I want to report to you or point out to you that the board has recently approved of an additional 500 million buyback plan for us to ensure our return on interest or return on our shareholders. So I look forward to speaking with you all know in the future. Thanks again for joining us today.
Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
