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.

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.

Thanks management, for taking my questions. I have a question regarding the situation of the pandemic and the monthly parcel volume trends.

Given we have seen positive parcel volume growth in the first few days of May, how should we think about for the full months, as well as our thoughts about the June performance? And a follow up on that, relating to double confirm the first half, the growth is around 4.5%.

And how should we think about the growth momentum in Q3 and Q4? Thank you.

Thank you, Mr. Chang, for your question.

Let me answer this, I'll give you a little bit more breakdown. Yes, indeed, in the month of May, we saw a recovery especially during the May holiday.

And on a cumulative basis, including the first five months of the year, we are looking at around 3%-3.5% at most of cumulative growth because the really first two months of the growth is fairly strong for the industry. The industry specifically for the month of May, we think it's probably just coming out of the negative and into the positive territory.

And then for the month of June, with the consideration of the Shopping Gala of 6/18, we think it could have a good possibility of reaching the high-single digit of growth year-over-year. Now with these together, it gives us a rough estimate of the first half of the year for the industry to be around 4.5%.

Now going into the third and the fourth quarter, we referenced to what happened in the first outbreak of COVID-19 in 2000 -- late 2019 into 2020. The rebound was healthy, and with that into consideration and also a referencing to the projection that was given by the state post bureau in the beginning of the year, which says the industry is capable of growing at least 13%.

We estimated the third quarter in the fourth quarter for the second half of the year to grow around 10% to 13%. So specifically perhaps 12% to 14% or 10% to 12% respectively for the third in the fourth quarter.

That gives us for the entire year around 7.5% to 10% growth for the industry. I hope that is detailed enough.

However I want to ensure that you understand there are still lots of uncertainties in the outcome of the recovery, what might take place in terms of the pace. For sure it's going to recover it's the matter of how long it will take and as we go into deeper into the second half of the year then we will have a better view.

Thank you.

Thank you.

The first line is the difference between the 1K [ph] business and the franchise model. What is Mr.

Lai’s view on that so all the ZTO is how this is going to strengthen its own competitive advantage. The second is to regarding the end user cause of behavior change from a long haul to a short distance from e-commerce to foods and grocery delivers.

So in that front, does ZTO have any plan. [Foreign Language]

Thank you, Tian for your question. I'll translate for Mr.

Lai, and also I supplement where needed. First of all, whether directly operated vertically owned model or a franchise model is better is really a discussion we had for years.

And it's not about one better versus the other, but each has its own advantages or disadvantages. We look back into history, the speed of expansion, the way that we are able to motivate thousands of entrepreneurs to be part of the tremendous growth supported with economic growth, all these shown that the express delivery in a franchised model is not necessarily in providing any quality of services inferior to the direct the operating model.

The important part is it is a crucial element in terms of how we are able to ensure the investment and the reward of our franchise network is fair and equitable. And our initiatives throughout our 20 years demonstrates that commitment and also result of success in allowing the express market share gain, efficiency gain as well as servicing the customer needs.

You specifically talked about during the pandemic or hard times what happens to some of the more vertically operated business. Our view is that the time as this are extremely unfortunate, but rare.

The entire growth of the industry hinged upon economic growth is -- has been intact and then also will be intact going forward and a franchise model will continue to demonstrate its foundational design, which is to again motivate with self-propelled intention to grow in quality as well as quantity. That leads to the second part of the question.

The express delivery industry is a long journey. We do know that the first part of the year, the Omicron impact was quite devastating.

However, despite such, we saw the rebound in the month of May and we are expecting the demand remains intact. Volume or not distance short or long, we think the critical consideration is whether efficiencies is there.

For example, as we grow into more of the rural area going into the farm going to the factories, the goal is to spend less but achieved for more either for manufacturers or merchants or for consumers. The efficiency and the scale achieved by the express delivery industry has been an enabler for the past growth and also, we expect it to continue to be the case in the future.

The example Mr. Lai gave us is that when we have products in the eastern part of the country or north part of the country, as it being shipped, the produces or goods or daily necessities.

The cost of going into all these directions across the nation are very much similar with very little differences. And that is because the efficiencies of the entire network, the high efficient operations and the people and, of course, that network partners that made it all possible.

So going into the future, certainly we will expand our capabilities into diversified products and services, serving different needs and different distances or different types of goods and different consumer groups. But that doesn't change our overall goal is to continue to seize the opportunity that is presented to us in the Chinese economic growth and the industry growth.

I hope that answered your question.

Thank you.

So I got two questions. First related to the market competition landscape.

And so how is the real for the industry ASP for this year? And do you see any changes for market position after the recent outbreak -- pandemic outbreaks.

And the second question is what is the financial impact for the express services VAT waiver?

Let me first translate for Chairman for the first question. And then I'll take your second question.

The doesn't matter what the external changes are, there are a few critical internal considerations, especially our capacity our efficiency gain, because the overall growth trajectory of the economy of China is still on an upward trend and express delivery industry has been a catalyst or as well as a beneficiary of that growth. We think that the industry dynamics will continue to shift towards a more concentrated players taking greater share of the market and the stronger ones will become even more strong, that will become stronger.

In terms of the pricing, we think the Omicron or the pandemic is going to become a thing of the past even though it might continue to be part of our norm as prevention measures are becoming our day-to-day norm. Yet the competition since the month of September last year, has becoming -- has become more stabilized in sensible because everyone has realized and experienced the past paying and market share gain is could be a short stint, but it's not sustainable for the long run, quality and efficiencies still what the consumers or our customers that demand.

So pricing going forward, we think will continue to remain stable here in there in certain regions, depending on the capacity and demand, there will be reasonable changes, but that is all part of the normal competition. And we think that's not going to become as a reasonable and out of economic basis.

The second part of the question, yes, the government has given VAT waivers for services related to the prevention related to goods that are for prevention. So what happens to our business, is the impact might come with the rate differential.

In other words, because we pay VAT for the entire receipt, which includes the delivery fee. And the delivery fee element is enjoying the VAT waiver as it go into the hands of our network partners who deliver those packages.

And of course, the deliver network will issue receipts to us. Some of with those network partners are able to enjoy zero VAT rate.

And as we report the entire receipts with our 6%, because we don't differentiate in our receipts, whether it's zero or 6% taxed. So there is a rate differential is that we are required to take the burden off.

Does that answer your question?

[Foreign Language]

Thank you. If I may ask two questions.

First of all, when I look at your Slide 9, and for whatever it's worth, when we look at your next five years of e-commerce sales forecast versus the parcel volume growth, parcel volume growth is trailing by about 3.5%. Shall we think more as the differential is more of inflation?

Or are we seeing a trend where customers are, again start to consolidate the volume before they place an order. And secondly, given the inflationary environment, I would really appreciate if you can talk about a bit of sensitivity to some of your key cost item specifically related to fuel and labor and your operating leverage opportunity, i.e.

M&A. You have done a tremendous job in the first quarter, but how shall we think about every additional 10% of volume that you handle?

How shall we see the change in cost, i.e., what is what should we think as more fixed versus variable? Thank you so much.

Hello?

Yes, thank you for your question. On the Slide 9 we talked about -- hello?

Yeah, on the Slide 9, we talked about the volume growth in China. I think the volume growth has starting to exhibit -- hold on one sec.

On Page 9 for the market growth?

Yes.

The Express delivery, let me just give you an overview. I'm looking at the page nine it's a percentage of market share by various different players.

Is that correct?

I was more referring to expectation is that the volume growth will be 8.5%, driven by 12% growth in online retail sales. So the volume growth is trailing the retail sales.

Is it because the ticket size is increasing and is it largely inflation, or you think that we will continue to see the volume growth will trail online retail sales as consumers start to consolidate the volumes before they place an order.

I think the interpretation when you look at the online retail growth, the online physical goods growth and the entire economic growth, we believe the e-commerce growth is at a faster pace, and it's still being growing at a faster pace, because more and more of the people are going online and become a web shoppers. Then the parcel in itself, we do believe they are becoming more scarce or more of a sporadic order placing versus concentrated as in before during the Shopping Gala of November 11.

So day-to-day, goods are being also placed -- orders are also being placed online instead of going to the grocery stores. So that is the trend.

And that also another factor to consider is we are going into the other than consumer logistics, we are also going into the rural areas going to the farm going to the factories and bringing in service to those needs and those demand. The produce, which is of recent years, the development, more and more people are developing the habit of buying their perishables even online.

And then there's the second part of -- yeah, the second part of question relates to our cost element. Overall, I think the industry is in a way of brick and mortar.

So we do have a facility costs we have the depreciation, amortization of our invested assets, hard assets, the machinery, the trailer trucks that we have mentioned, those are also all part of our cost. The labor cost is what we are keeping a watchful eye on.

Because that's still a large portion of our total cost. The leverage is on gradually introducing a replacement of these labor costs with machinery automation, and then also the digitization investment into our IT technologies.

It's also part of our effort to continue to address the cost increases in the labor. The network framework of how we are developing more direct routes will also reduce the number of sortation, hence reducing the sorting costs and transportation costs.

And then that's also part of the structure of the cost that we are able to find opportunities to further enhance efficiencies.

Thank you so much.

You're welcome.

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.