BEST Inc (BEST) 2019 Q1 法說會逐字稿

Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to BEST Inc.'s First Quarter 2019 Earnings Conference Call. (Operator Instructions)

With us today are Johnny Chou, BEST Inc.'s Chairman and CEO; and Alice Guo, Chief Accounting Officer and Senior Vice President of Finance.

For today's agenda, Johnny will give a brief overview of business and operational highlights. Then Alice will explain the details of financial results. Following the prepared remarks, you may ask your questions.

Please note this call also is being webcast on BEST Inc.'s IR website at ir.best-inc.com. A replay of this call will be available after the call. An investor presentation is also available on the IR website.

Before I begin, I would read the safe harbor statement on behalf of BEST Inc.

Today's discussion will contain forward-looking statements. These forward-looking statements are based on management's current expectations. They involve inherent risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond management's control.

The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law.

Please also note that certain financial measures that the company uses in this call are expressed on a non-GAAP basis, such as EBITDA, adjusted EBITDA and non-GAAP net loss. The GAAP results and the reconciliation of GAAP to non-GAAP measures can be found on BEST Inc.'s earnings press release.

Finally, please note that unless otherwise stated, all figures mentioned during this call are in RMB.

Now I would like to turn the call over to Johnny Chou, Chairman and CEO of BEST Inc. Johnny, please go ahead.

Thank you, operator. Good morning, and good evening, everyone. Welcome, and thank you for joining our 2019 first quarter earnings call. I'm pleased to report that BEST is off to a strong start in 2019 as we continued the momentum from last year. It puts us on track to achieve our operational and our financial objectives for the year. Our strategy to gain market share, invest in networks and services, accelerate technology adoption, improve operating efficiency and enhance the customer experience enabled us to deliver another strong quarter.

Our technology-enabled platform and strong execution capability continue to position us well to capitalize on opportunities and succeed in a competitive market environment. As a result, we saw strong revenue growth and margin improvement during the quarter.

Now let me share some business highlights with you.

BEST Express continue to gain market share and achieved a significant above-market growth.

Express parcel volume exceeded RMB 1.34 billion, an increase of 41% year-over-year, which is 1.82x the industry-wide growth. Market share increased to 11% from 9.6% in the same period of 2018. On the back of fast volume growth, we continued to optimize our network and increase the level of automation and technology adoption to reduce costs and improve profitability. We reduced the total number of hubs and sortation centers to about 102 from 144 in the same period of last year.

As of end of quarter, we had 71 automated sorting centers assorting and 577 dimension and weight scanning systems in operation. As a result, reduction in average cost per parcel continued to outpace the decrease in average revenue per parcel. Cost per parcel decreased by 8% year-over-year, while revenue per parcel decreased by 6% year-over-year. For the next 3 quarters, we will remain focused on the market share gain, targeting a minimum 1.5x industry-wide growth. We also aim to further optimize our network to reduce the total number of hubs and sortation centers to around 90, and we will continue to invest in automation and technology application to improve efficiency and productivity.

BEST Freight continued its strong growth momentum in the first quarter. Freight volume exceeded 1.26 million tonnes, an increase of 29% year-over-year and significantly higher than industry average. Similar to BEST Express, strong volume growth enabled us to further optimize the freight network. We reduced the total number of hubs and sortation centers to 110 from 132 in the same period last year. Economy of scale and network optimization resulted in significant cost reduction.

Cost per tonne decreased by 5% year-over-year. We expanded our freight last-mile service coverage extensively to better serve our customers and support further market share gains over time. Our total number of franchisee partner-operated service stations increased by more than 40% year-over-year to nearly 15,000. Through last-mile expansion, we position ourselves to serve an increase percentage of e-commerce related transactions and achieve better product mix and profitability. We'll also continue to provide more value-added services to enhance customer experience.

BEST supply chain management delivered solid results during the quarter. The total number of order fulfilled increased by 44% year-on-year to RMB 62 million, of which the total number of orders fulfilled by franchised Cloud OFCs increased by 114% to over 22 million.

As of March 31, total general fulfillment areas of Cloud OFC increased by 19% year-over-year to 1.8 million square meters (sic) [2.8 million square meters,] of which over 1 million square meters were owned and operated by franchisees.

We are confident that margin for SCM will improve going forward as we continue to scale up our network and customer base, focus on fast-moving consumer goods and the fashion and apparel segments, and as market dynamics become more favorable.

For BEST Store+ as mentioned in the last call, 2019 will see us significantly grow the number of franchised BEST-Neighbor stores, while focusing on the quality of membership stores to improve profitability.

Total number of branded stores, including franchised and self-operated increased by over 500% year-over-year to 2,571 as of March 31, of which the number of BEST-Neighbor stores increased to 2,222 from 144 in the same period of last year. Number of orders fulfilled for branded stores exceeded 157,000 accounting for almost a 29% of total number of orders fulfilled. This represents a 10 percentage-point increase from the same period last year. Total number of membership stores increased by 23% year-over-year to over 426,000 in the same period. Total number of all orders fulfilled decreased by 5%, due to ongoing efforts to improve the quality of orders from membership stores to increase profitability. We are confident that the total number of orders fulfilled will accelerate, again, as we scale up the franchiser stores.

During the first quarter, we also launched a Store+ membership program as well as online-to-offline and last-mile services in selected stores. For the rest of 2019, we are committed to significantly expanding the number of franchiser stores, improving the quality of membership stores, and rolling our new products and services to improve margins and reduce the fulfillment expenses per order.

UCargo, our truckload capacity brokerage platform, continued its rapid growth since opening its access to external customers last March.

The number of transactions on the UCargo platform increased by over 200% year-over-year to almost 200,000. The number of registered agents on the UCargo platform increased 40% year-over-year to over 4,600 and the number of registered trucks increased 46% year-over-year to nearly 280,000 as of March 31. Market demand for truckload transportation in China is enormous, estimated to be more than RMB 3 trillion. By leveraging our technology infrastructure and operational expertise, the UCargo platform is well positioned to disintermediate and capture the sizable opportunities.

In addition to full truckload brokerage, we also provided aftermarket service, such as bulk purchase, insurance, maintenance and repairs. We are in the process of developing solutions in multimodal, LTL and clean energy vehicles to further drive revenue growth and a margin expansion. We believe UCargo will continue its rapid growth trajectory in the near future.

BEST Capital continued to expand its financial offering and solutions to our ecosystem participants and contribute to improved overall operating efficiency in our network. As of March 31, it had provided leasing service to over 9,000 trucks, which had more than doubled year-on-year.

BEST Cloud (sic) [Global] continued to broaden its reach. As of March 31, BEST Global served 15 countries and regions outside of Mainland China. We launched express delivery and supply chain management services in Thailand nationwide, and we plan to further expand and build our presence in Southeast Asia. We believe our technology platform, asset-light business model and operational expertise provides us with a significant advantage to capture the market opportunities created by the significant economic and e-commerce growth in the region.

Overall, we delivered excellent results in the first quarter of 2019. As e-commerce penetration accelerates in lower-tier cities in China and in countries in Southeast Asia, we believe these areas will drive much of the consumption growth in the coming years. BEST, with its technology-enabled network and strong execution capability, is well positioned to capture these opportunities and succeed in an environment of increased demand for integrated supply chain solutions and logistics services online-to-offline integration and ongoing industry consolidation.

With that, let me turn this over to Alice. Alice, go ahead.

Thank you, Johnny. Hello, everyone.

BEST's strong operating performance is reflected in revenue growth and margin improvement. In a traditional slow first quarter, which is impacted by business slowdown over Chinese New Year, we delivered revenue of RMB 6.9 billion, representing a year-over-year increase of 37.4%. Gross profit increased by 167% over the same period last year to RMB 293 million, while cost of revenue as a percentage of revenue decreased by 2.1% as a result of increased operating leverage and the continued efforts in cost reduction, network optimization and operational improvement.

Gross profit margin increased to 4.3% from 2.2% from the same period last year. By balancing growth and investment, we reduced our first quarter net loss by 31% year-over-year to RMB 233 million and reduced adjusted EBITDA loss by 63% to RMB 79 million. We believe our strong first quarter puts us on track to achieve our revenue guidance and reach the goal of turning net income positive for the full year 2019.

Reconciliation of non-GAAP measures to comparable GAAP measures and relevant adjustments can be found in our earnings press release.

Now let me share some key financial highlights.

On a year-over-year basis, Express revenue increased by 32% to RMB 4.3 billion. In terms of unit economics, revenue per parcel decreased by 6%, while cost per parcel decreased by 8%, of which transportation cost are decreased by 11%, labor cost are decreased by 33 -- 36%, lease cost are decreased by 8% and other costs are decreased by 30%. Gross profit per parcel increased by 207% to RMB $0.09.

Freight revenue increased by 30% to RMB 1 billion. In terms of unit economies, revenue per tonne increased by 1%, while cost per tonne decreased by 5%, of which transportation cost decreased by 10%, labor cost are decreased by 6%, lease cost are decreased by 8% and other costs are decreased by 16%. Gross profit per tonne increased to RMB 26 compared with negative RMB 17 in the same period of last year.

Supply chain management revenue increased by 34% to RMB 534 million. Gross profit increased by 4% to RMB 21 million. Gross profit margin decreased by 1.1 percentage point to 3.9% mainly due to taking possession of new facilities for future expansion.

Store+ revenue increased by 2% to RMB 554 million. Slowdown in revenue growth is due to decrease in number of orders fulfilled for membership stores from ongoing effort to improve the quality of order. As a result, gross profit margin improved by 2.6 percentage points to 12.7%.

The revenue from other service lines increased significantly by almost 6.5x to RMB 536 million, mainly due to the rapid growth of the UCargo platform. Revenues generated from external customers on the UCargo platform exceeded RMB 444 million, which accounted for more than 6.5% of company's revenue last quarter. Gross profit from other service lines also increased by 91% to RMB 42 million.

And Adjusted operating expenses as a percentage of revenue decreased by 1.2% to 7.5%, driven by improved operating leverage and efficiency, of which selling expense as a percentage of revenue decreased by 1.5 percentage points to 2.8%.

G&A expense as a percentage of revenue maintained at 3.9%. R&D expenses as a percentage of revenue increased by 0.2 percentage points to 0.8%, primarily due to the hiring of additional R&D professionals.

Net cash used in operating activities was RMB 206 million compared to RMB 611 million in the same quarter of 2018. The negative operating cash flow in the first quarter was primarily due to seasonal decrease in business volume in the first quarter due to Chinese New Year holidays, which impacted our cash flow, while at the same time we settled large amounts of account payables in the first quarter for the services incurred in the fourth quarter last year, the traditional peak season, which impacted the cash outflow. We expect operating cash flow to turn positive rest of the year. Cash and the cash equivalents, restricted cash and short-term investments in total were RMB 3.9 billion as of March 31, 2019, compared to RMB 4 billion as of December 31, 2018. The decrease was primarily due to CapEx and the net cash used in operating activities.

CapEx was RMB 206 million, or 3% of total revenue. Most of the CapEx this quarter was used to upgrade the automation system in our operations.

Now let's revisit our 2019 financial outlook. Based on current market conditions and operations, we maintain our full year 2019 revenue guidance to be in the range of RMB 36.5 billion to RMB 37.2 billion. This represents management's current and preliminary expectation, which is subject to change.

With that, we will now open the call to Q&A. Thank you.

(Operator Instructions) And the first question comes from Scott Schneeberger with Oppenheimer.

Just curious in Express, a good booking quarter, and Johnny, you mentioned maintaining for the upcoming 3 quarters, growing at least 1.5x the industry volume -- the anticipated industry volume, could you speak a little bit more about how you're going to balance the price and volume over the remainder of the year?

Okay. Thank you, Scott. As you have seen on our release, the ASP is down somewhat about 6%, but, however, our operating costs -- not operating cost, the cost has reduced even more. So for the year, we believe that we're going to continue to drive down the cost faster than the ASP reductions. So meanwhile, we will continue to have higher gross volume growth -- higher than -- much higher than the market. So basically, it's to -- how do you continue to reduce the cost and faster to maintain the profitability and the margin improvement.

Great. And for a follow-up, I'd like to go over the supply chain. A great quarter across the board in all the segments, a little lighter on revenue and margin than I anticipated here and, obviously, a lot of investment and build of new facilities. Could you just elaborate a little bit on what type of customers you're bringing on? And how you see managing over coming quarters all the investment in that area to maintain a solid margin in the trajectory?

Okay. Actually, the first quarter, the margin was impacted by some of the bad collections, one of the particular customers. The customer actually was in financial (inaudible) and so we have write down some of this collection on that. But in meanwhile, I think the most of the cost structure is fairly well maintained. We do have about 100,000 square meters of vacant space, which have to be -- a little bit more than that actually about 150,000 space, which we take the control of that from last fourth quarter when somebody completed the construction. So that had to be fulfilled in the next couple of quarters. So meanwhile, we are focusing on 2 key areas, which we think have a competitive advantage. One is the fashion, the clothing, which -- traditionally, it's a more difficult part of the supply chain because lot of SKUs and change a lot and couple -- typically, customer have large SKUs, and seasonally, change a lot. So it's more difficult to do and fairly have a higher margin. And other than that combining with our Store+, we will focus on the FMCG type of it, and that will give us a higher growth synergies with the Store+ program. In that, I think we will be able to fulfill the vacant space quickly as well as focusing on the segment or the market that we have advantage on. And further, I think, in general, this year's macro -- actually environment is better. I think most of our competitors or other fulfillment companies -- and also striving for the margin gains and profitability, so we think a lot of pricing competition in supply chain this year versus last.

And the next question comes from Baoying Zhai with Citi.

George -- Johnny, George and the team, so congratulations on the call today, especially improvement of this quarter. I have 2 questions. The first question is still on the Express ASP. I would say, it's still a little bit weaker than my expectation. If excluding the last model, I'll say, it should be down 16% year-on-year. So would it change looking into second quarter of 2019, is it better? Or is it worse? And also, may I know the average weight per parcel, change in the first quarter? As I noticed some other players' parcels are becoming heavier and heavier, so does that also see the same trend? Besides, we also see the last-mile delivery trend in the first quarter was increasing for BEST, and we noticed ZTO's recent policy is going to lower their last-mile delivery fee to boost the volume growth, so which strategy you think is better to gain market share in this market? So this is my first question. My second question is on the G&A expenses. Actually, I didn't see much operating leverage in this quarter in terms of the percentage of the sales, despite we achieved a strong top line growth this quarter, so what's the reason behind? And how should we forecast going forward?

Okay. Thank you, Baoying. You're asking a broad range and sharp questions. Yes, so on the ASP side, we -- overall, we have down about 6%. Now you say, remove the last-mile. I mean when we do a cost structure, we include the last-mile everything into the cost structure. Now to answer this question for you and the last one, say, you noticed other company, it's been reducing the last-mile delivery fees, how is that? I cannot comment on what other people are doing, but I can say what are -- we are doing. Last-mile fees basically is a fees we paid to the last-mile service station or the franchisees for delivery services. So in our view, this number should not be too low because you want to maintain a good service level that delivery man deliver a parcel, we're hoping that they can make more money and they have better services, rather than they have less money to make. So if you look at our first quarter number, our last-mile delivery fees actually has increased from RMB 1.60 to RMB 1.67. So we actually increased our last-mile trying to maintain the service level -- even better service level. But you would argue, say, okay, 6% drop in the total ASP, including the last-mile delivery fees, costs reduced by 8%. But if you're taking out the cost of last-mile delivery, our actual costs reduced by 20%, as was released on the number. So we reduced about 20% on the total costs, the cost exceeding -- excluding the -- so our last-mile is somewhat little bit higher, so I just maintain to say that last-mile is essentially -- delivery fees essential for the partners, for the last-mile delivery people, delivery man to maintain a good service level. So we will continue to support the last-mile delivery and make sure that they have better incomes and also have a better services. So that's our view on that. As for the (inaudible), we are also -- you have noticed very sharply that we have also increased slightly about 3%. So from a 1.2 kilo per parcel to about 1.28 kilograms per parcel, so around 3% increase. So the parcel weight actually varies quarter-by-quarter or month-by-month. Summertime probably, it will be little bit -- second quarter, third quarter will be a little bit lighter and first quarter typically will be a little bit heavier because due to a Chinese New Year. And -- so yes, the first quarter, our weight is also little bit increased.

Finally, SG&A expenses. So our total operating expenses, sales expenses as a percentage of the sales, revenue has dropped upon 4.3% to about 2.8%, so that's a significant drop about 30% to 40% drop. So you noticed about G&A, you say, well, 3.9% last year and 3.9% this quarter, so you're expecting revenue grow by about 37%, you will see some cost advantage or the leverage. The reason is that we are working on some projects, such as internationals, and some [new cargoes attached in turn], generated some of the general expenses for project management for some of these costs, so incurred to the headquarter. So these are main reasons. Ongoing basis, you should be able to see this continued drop. So I think the transition is because since first quarter of this year, we are spending some amount of efforts in Southeast Asia doing due diligence, doing a lot of these field trips that does increase a little bit on the general administration costs. (inaudible).

So just to confirm the weight. So you mean it's year-on-year 3% increase, right?

I'm sorry? You mean SG&A? Yes, SG&A for full year, we should see some, some -- I'm sorry. Sorry, can you...

Sorry, it's weight per parcel. Is it year-on-year -- hello?

Oh, you mean the weight per parcel?

Yes.

I think this year should be too much -- not too much a difference from last year, but probably you noticed is right. It should be a -- maybe a little bit heavier than the last year, simply because everybody is looking for market gains and everything else, so they were accepting a fairly larger parcels versus before and everybody want to have more parcels.

Okay. So the present trend into the second quarter is similar to the first quarter, if we exclude the last-mile delivery fee?

I think I have some -- what's the question?

The trend into the second quarter?

Oh, ASP per parcel. Yes, so ASP per parcel, excluding the last-mile, I think second quarter will have little more pressure from first quarter. So it's -- if we were to have -- seeing some of the pressures on that. As to exactly how much, I don't know exactly yet, but I think the competition on the marketplace, it is pretty heavy.

And the next question comes from Eric Zong from Macquarie.

First of all, congratulations for the good results in the first quarter. So I have 2 questions. So the first question is on Store+ business. So we saw that it was earning 1.5% year-on-year growth for revenue in Store+, so I remember in the Q4 results call, you guided about 17% to 18% of the revenue growth for 2019. So I just wonder if you have actually changed your growth target for the year. Or we can assume going forward for the rest of 3 quarters we will have the revenue -- much faster revenue growth, right? So -- and also how does it related to your margin improvement because that's -- the margin actually expanded more than 2 percentage points year-on-year in the first quarter, I think -- and so the reason being should it be the branded store number increased a lot, right? So just wanted to get your sense on the margin outlook. So my second question is on freight business. So just wonder how is like freight revenue per tonne trending in the second quarter so far, I mean, excluding last-mile delivery fee?

Thank you, Eric. With regard to Store+, yes, so we did guide (inaudible) last quarter on the fourth quarter call about 17%, 18%. I think that we are still going to see above -- around this number's growth. First quarter is a little bit lower because we purposely try to make it in the first quarter January, other business are doing quite well and we want to not to impact too much our bottom line, so we purposely try to focus on quality of orders. So the growth is a little bit lower. Our second, third and fourth quarter should see a slightly higher growth, but I think the full year probably will be a little bit less than 17% to 18%, but would remain -- the whole group revenue we will maintain above our guidance like -- just like Alice said, but Store+, we will continue to focus on improved margins and reduced fulfillment costs, supply chain costs. So the margin improvement, I think, year-over-year still to continue to improve. Quarter-by-quarter may have some variations, but compared with last year, same time year-over-year should have a good improvement. That's on Store+. So this year, our effort is to improve the quality of orders and improve the margins and to reduce operation of costs on that. So hopefully, our Store+ loss will be reduced and bottom line can be improved on that. On the freight business, first quarter, we actually have a 1% increase on the ASP per tonne versus last year. But as you said, our second quarter, third quarter, we see our Freight segment also has some model competition, so might reduce slightly. So if you look at our freight, which will have a same pattern as parcel, we actually increased significantly on the last-mile delivery fees for our franchisees from about RMB 137 to about RMB 150 something. So we actually increased the last-mile service fee for franchisees to allow them to have a better services. Another part of reason because the delivery is much more deep into the villages, towns and everything else, so the cost of delivery will be a little bit higher on that. As a whole, I think the ASP, excluding the last-mile delivery, will be trending down a few percentage points. That's what's our expectation and our plan, but it's not going to be significant compared with Express.

Okay. And Johnny, just want to follow-up 1 question on freight. So when you say, ASP for freight, excluding last-mile delivery fee will trend down a few percentage points, are you referring year-on-year or Q-on-Q like sequential basis?

Year-over-year, year-over-year. Year-over-year, about we feel about 3 to 4 percentage compared with last year. So if you look at our freight for first quarter, the revenue actually went up 1% ASP per tonne, went up 1%, but excluding the last-mile delivery costs, it was actually down 3%. So if you are asking that question, is that? I think the last-mile delivery fee will continue to -- will not continue to increase, but I think it's not going to have reductions. But I think we want to make sure the last-mile is doing well, but the revenue per ASP per tonne excluding will be trending down about 4% -- 3% to 4%.

And the next question comes from Calvin Wong with JPMorgan.

Johnny, George and team, congratulations on a strong set of results. A couple of questions for me. First is just on the supply chain management, can you give me a little bit more color here with respect to -- you mentioned you had to write down some accounts with respect to a particular customer. Did that affect the revenue or just the cost side because the revenue growth was so quite strong, it was mainly the margin that was a bit of a disappointment. So that's my first question. Second is on Express. You mentioned that second quarter we should still be seeing some pressures, are you talking now mainly about the absolute ASP, excluding last-mile is what we're talking about? The absolute ASP number still under a bit of pressure on a sequential basis? Or are we talking about a year-on-year percentage decline that figure is still under quite a bit of pressure.

Okay. Calvin, on the first question, it's basically -- we -- every year, you have a lot of accounts. So we have 600 some customers on a supply chain side, and once a while, does have some customers due to their own operation. We'll have some bad debt or collection problems or something like that, so we will do that. So on the ASP side for the freight, for Express, basically is that excluding last-mile, sequentially, quarter-by-quarter, you will see some reductions. If you look at every year, the pattern is the same. The first quarter probably have a high ASP, and second and third quarter will reduce a little bit and fourth quarter because of the high season everybody jacked up the price a little bit, it went up a little bit, so second and third quarter, if you look at year-over-year, it's going to be lower ASP than the first quarter. It's -- sequentially, it will be driven. Yes, but we also see a good reduction in cost reductions as well because typically the first quarter, if you look at the cost structure for parcel -- cost per parcel, first quarter every year is always the highest because you got about 10, 15 days basically on holiday, on new year holiday, and you got all these leasing people and everything to pay. But every quarter, it actually goes down. So the price -- as your cost per parcel, the lowest is the fourth quarter -- third and fourth quarter and the first quarter is always the highest.

Got it. Got it. Sorry, and if I could just very quickly, you had mentioned that the G&A expenses we didn't really see much operating leverage kick in mainly because we are still -- we had some, if you will start a cost, right, we're working on some new initiatives, are you able to kind of quantify how much additional cost we can sort of consider more one-off and nonrecurring just so we get a sense of when those costs may be start coming off? What that operating leverage impact could be on the G&A front?

All right. So I think the second quarter probably will be a similar to the first quarter pattern -- the reduction you will see probably come from third quarter because we are working on several projects and does incur some expenses. But I think starting from third quarter, we should see some reduction there, I think, some of the percentage-wise. So right now, you're looking about 3.9%. So total, it's a -- third quarter and fourth quarter, I think this number should be going down a little bit. But as you can see, right, the sales side already reduced tremendously from 4.3% to 2.8%. So it's almost like a 30% to 40% reduction already. So G&A, I think we're expecting about third quarter and fourth quarter, you'll see an improvement.

And the next question comes from Ronald Keung with Goldman Sachs.

Two questions. Firstly, on Express, I see very strong growth in the first quarter and you mentioned about competition still remains quite intense. So I'm just thinking about the second quarter so far. Traditionally, the second quarter is where Express ASPs for sequentially and year-on-year, of course, had been declining as well. Just how have you seen the incremental elasticity of price versus volume growth? I'm thinking that in the first quarter, there has been a quite a low base as well, a lot of the e-commerce platforms like Taobao this year was -- is on full operations during Chinese New Year, while they weren't as fully operational, a lot of Express branches last year. So you got a pretty easy base, you cut a little prices and you have a pretty strong growth and we've seen across the board in the first quarter. In the second quarter, so far, how are we seeing that? Are players trying to maintain the similar growth patterns in the first quarter, but how has the elasticity been, i.e. how many -- if you cut prices more, does that stimulate growth immediately? Or actually the base is not as these other -- the growth may be slower. So just want to see how have you seen the competitive landscape in sort of pricing in the second quarter? And my second question would be more on your international business. Can you share how your Thailand business is doing? Some exciting things happening there on Express and I've seen you're also expanding on supply chain, so we'd like to hear any initial results or anything that's happening down in Thailand?

Thank you, Ronald. The first question is about Express, I'm sure a lot of people were having similar questions. The market dynamic, we still see a few things, right. Basically the consolidation is happening, so the top 5 players, too north and best top players, the concentration continue to increase, so with the 5 companies getting more and more market shares, okay? But as a result, also pricing competition also very severe. People still think that their cost reductions continue to outpace the pricing reductions. So these are the general dynamics. So what we see is that the pricing pressures continue to -- can be very heavy and just like you and Baoying and others have noticed, the second quarter, we should still see a sequential quarter-by-quarter, or same time last year, reductions on the ASP side. But the good things about it is we're seeing volume growth actually is fast, probably even faster than this first quarter and the cost reductions continue to be reducing fast, probably reducing faster than the pricing as well. So generally, we're seeing general market pricing pressure is high because of the top 5 players basically continue to grab market shares. And you will notice that the second quarter, the pricing will go down a little bit. But, however, the costs are going down faster. So as a general result, I think, the bottom line still looks better and the market share looks -- market share should gain more. So that's our view of that. Second question about international. So international, which we have noticed a few years ago, especially, regarding to Southeast Asia, with 600 million people, mobile and economics is growing very fast, online's penetration is low, but growing very rapidly. However, the infrastructure off-line to support the e-commerce growth is very weak. So it's more like 30 years ago, 20 -- 10, 20 years ago, China in terms of the infrastructure. So we think there's a great opportunity to go there and with our know-how and platforms and everything. So Thailand, we rolled out the whole country coverage on January 18. So now it's about a quarter old past. So we continue to sign on both franchisees, get on more partners. Our volume being -- every month that being breaking the records. So now we have about 7 sortation centers and hubs was established in the Thailand and the volume continue to grow. So we hopefully to see a fairly strong momentum towards the end of the year and hopefully, by the end of the year or next -- early next year, there we should see Thailand should be in a pretty good bottom line, breakeven or some kind of operation. Meanwhile, we're looking at west part of Southeast Asia, in Vietnam, in Indonesia, in Philippines, or in Malaysia, et cetera. So quarter-by-quarter, we will release these numbers. We'll release these -- our actions and what we have done, the projects. So now I probably won't be in the liberty to tell the rest of it, but I think, quarter-by-quarter, you should expecting to see a lot more international activities, especially out of Southeast Asia.

And as there are no more questions, I would like to return the floor to management for any closing comments.

Yes. So yes, thank you for joining our call, and we appreciate your support of BEST. Please reach out to our Investor Relations team, if you have any further questions. We look forward to speaking to you soon. Thank you very much.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.