BEST Inc (BEST) 2020 Q2 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 Second Quarter 2020 Earnings Conference. (Operator Instructions)

With us today are Johnny Chou, BEST Inc.'s Chairman and CEO; and Gloria Fan, Chief Financial Officer. For today's agenda, Johnny will give a brief overview of business and operational highlights. Then Gloria will explain the details of financial results. Following the prepared remarks, you may ask your questions. Please note, this call is also being webcasted on BEST Inc.'s our website at ir.best inc.com. A replay of this call will be available after the call and an investor presentation is also available on the IR website.

Before it begins, I will 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 the management's control. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or others, except as required under applicable law.

Please also note that certain financial measures that the company uses on 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 in BEST Inc.'s earnings press release. Finally, please note that unless otherwise stated, all of the figures mentioned during this conference call are in RMB.

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

Thank you, operator. Good morning, and good evening, everyone. Welcome, and thank you for joining our earnings call. With the height of the COVID-19 pandemic in China behind us, we made a faster-than-expected recovery as we benefited from the deeper and wider trends of digitization for merchants and online shopping for consumers. In the second quarter of 2020, we strategically targeted both top line growth and profitability while enhancing efficiency across our business. As a result, we continue to gain healthy volume growth while lowering costs in our Express and Freight segments and improved our gross margin by 0.9 percentage point year-over-year, despite challenging market dynamics.

We also continue to make strong progress in Store+, which resulted in a significant reduction in losses. We are confident that we have developed the right business model for Store+ that will bring a positive impact to the company's revenue growth and profitability. Our momentum has also been strong for Global, driven by robust demand in Southeast Asia and further boosted by our entries into markets of Malaysia, Singapore and Cambodia during the second quarter.

Now let me share some insights on the business. First, our core logistics and the supply chain units. Strategically, in line with our company-wide pursuit of balanced top line growth and [profitability] (corrected by the company after the call), we continue to emphasize business integration, synergies and efficiencies. We promoted e-commerce-related transactions across all business units and achieved strong business-to-consumer growth during the quarter. We also made progress on enhancement of service quality through strengthening network flexibility, density of last-mile service outlets and finally, the overall consumer experience.

For Express, despite intensified market conditions, we were successful in maintaining our position as one of the top-tier players in the market. Through our continued efforts of cost reductions and enhanced quality of services, our parcel volume increased by 19.3% year-over-year to RMB 2.3 billion, representing market share of 10.7% during the quarter. And improving 0.2 percentage points compared to the first quarter. We also achieved gross margin expansion of 0.9 percentage point year-over-year as the average cost per parcel decreased by 21.5% versus last year.

Going into the second half of 2020, we remain focused on increasing market share, investing in automation and further integrating dynamic routing with Freight to enhance operational efficiencies and improve profitability.

Our Freight business achieved great results in the second quarter. We continue to solidifying its leadership position and achieved delivery volume of over 2.2 million tonnes, growing 28.9% year-over-year, which was significantly higher than industry-wide average. Average cost per tonnes decreased by 21.1% year-over-year, leading to a strong gross margin of 8.9%, a record high and 2.5 percentage points higher compared to the same period last year. This was driven primarily by our focus on e-commerce products, economy of scale, and continuous network optimization and operating efficiency.

Let me provide a little bit more color on the LTL or less than truckload Freight market. And our positioning with its market. Overall, LTL is a large market. Traditionally, the demand for LTL Freight service was primarily B2B for manufacturers and wholesalers. But since last year, more demand has been e-commerce related. Our LTL services have experienced robust growth driven by increasingly more large-sized e-commerce products, our network penetration into lower-tier cities to serve its strong consumption growth as well as further market consolidation that has benefited top-tier players such as BEST Freight.

In the second half of 2020, we expect the Freight to continue to grow in the 30% range. We are also confident we can continue to optimize our cost structure through economies of scale, automation and transportation cost reductions, by working on areas such as efficiency improvements of our hubs and sortation centers, while realizing additional synergies with our other businesses.

Moving to BEST supply chain management. Strategically, we view it as a central component of our core supply chain and logistics units. And therefore, we'll continue deepening the integrated services model and promoting cross-selling between business units. Operationally, we target expanding franchise of Cloud OFC business, and project with higher margins and clients with strong credit profile. As a result, its second quarter gross margin increased by 0.8 percentage point year-over-year to 9.7%. The total number of orders fulfilled by Cloud OFCs increased by 28.5% year-over-year to $111.3 million in the second quarter, of which total number of orders fulfilled by franchise Cloud OFCs increased by 46.4% year-over-year to 53.7 million. The number of franchise OFCs increased by 25.9% year-over-year to 326.

BEST UCargo, our fast-growing online full truckload brokerage platform. Following the effort was started in the first quarter, we further expanded our brokerage model and added more small and mid-sized enterprises. The number of registered drivers on the UCargo mobile apps increased 141.9% year-over-year to over 244,000. Total number of transactions on the trucking brokerage platform increased by 19.8% year-over-year. We plan to bring many more drivers and SMEs directly onto the platform in coming quarters and, consequently, further increase the number of transactions. For BEST Store+, we continued our strategic initiative of transforming this unit to be more asset-light by focusing on growing high-quality membership and franchised stores through a partnership model. With strong and ongoing acceleration of businesses moving online, merchants and store owners have strong demand for digitization and online business expansion, while improving supply chain efficiency. Early this year, we started adopting the strategy to accelerate the growth of membership and franchise stores onto Store+ platform, while addressing the margin improvement and efficiency in fulfillment cost.

During the quarter, we continued to optimize the operation of our branded stores and refine our centralized procurement model in order to achieve a better cost structure and higher margins. As a result, as such, gross profit margin of BEST Store+ improved by 2.2 percentage points year-over-year to 13% in the second quarter. We are confident that we have the right asset-light model for Store+ that will bring a positive impact to our group's revenue growth and profitability. For BEST Global, we achieved strong second quarter results driven by continued growth in Southeast Asia. Parcel volume in Thailand increased by 95% quarter-over-quarter to approximately 10 million, while partial volume in Vietnam increased by 54% quarter-over-quarter to 5.75 million. We also launched Express delivery services in Malaysia, Cambodia and Singapore, marking another significant step forward in building an efficient logistic network with extensive coverage in Southeast Asia. Looking ahead, we are committed to delivering high-quality growth in a challenging market environment. We will maintain a balancing -- balanced growth strategy and strive for profitability by continuing leveraging our technology-enabled integrated supply chain and logistics services model, through emphasizing e-commerce, investing in technology application and automation, capturing revenue and cost synergies across multiple business units, enhancing service quality.

Now I would like to turn the call over to our CFO, Gloria, to walk you through our second quarter financials. Thank you.

Thank you, Johnny, and hello to everyone. As Johnny clearly laid out, we delivered a solid quarter through operational excellence and execution with a difficult macro environment and intense competition in the industry. As we progress through this period of great economic uncertainties, we have ample liquidity, a strong balance sheet and a keen focus on cost management.

I will now provide a brief review of our second quarter 2020 financial results. Given the limited time on today's call, I will be presenting some abbreviated financial highlights. I encourage you to read through our press release issued earlier today for further details. We focused our efforts on sustainable growth during the second quarter. While our revenue contracted slightly by 4% year-over-year, we achieved non-GAAP net income of RMB 11 million, higher than RMB 6.5 million in the same period 2019. If excluding the interest expense of convertible bonds, our non-GAAP net income would have been over RMB 20 million.

Our gross margin was 6.8%, an increase of 0.9 percentage points year-over-year due to improved operating efficiency, which resulted in continued cost reductions. Adjusted EBITDA for Q2 was RMB 158 million compared to RMB 148 million over the same period of 2019. Q2 adjusted EBITDA for core logistics and the supply chain business was RMB 291 million compared to RMB 298 million for the same period of 2019. Additionally, we generated net operating cash flow of over RMB 700 million during Q2 compared to the RMB 334 million of the same period of 2019, as we recovered from COVID-19 and our Express and Freight volume has grown significantly from Q1 2020. Our robust cash flow from operations led to a strong balance of cash and cash equivalents, restricted cash and short-term investments of RMB 5.1 billion, which provides us a solid financial position for future growth.

Next moving on to key financial highlights for our business unit. On a year-over-year basis, Q2 revenue for BEST Express decreased by 5% to RMB 5.2 billion, primarily due to a 21% decrease in average selling price per parcel, offset by a 19% increase in parcel volume. The drop in ASP was due to competitive market dynamics. The cost per parcel decreased by 21%, mainly due to improved operating efficiency and network optimization, which resulted in lower last mile, transportation, labor, lease and other costs. Adjusted EBITDA for BEST Express was RMB 189 million compared to RMB 216 million for the same period of last year.

BEST Freight Q2 revenue increased by 4.5% to RMB 1.4 billion, primarily due to a 29% increase of Freight volume and offset by a 19% decrease of ASP per tonne. Adjusted EBITDA for BEST Freight was RMB 73 million, which was more than double compared to RMB 31 million for the same period of last year.

Q2 revenue for BEST Supply Chain Management decreased by 15% to RMB 510 million primarily due to a decrease in transportation service revenue as we strategically target higher-margin customers. Adjusted EBITDA for BEST supply chain management was RMB 5.7 million compared to RMB 14.4 million for the same period of last year.

BEST UCargo's Q2 revenue decreased by 6% to RMB 493 million due to a shift from key accounts to small and medium enterprise business. Adjusted EBITDA for BEST UCargo was negative RMB 17.5 million compared to RMB positive RMB 5 million for the same period of last year. BEST Capital's revenue decreased by 13% compared to Q2 2019 due to our more stringent credit control policy. Its adjusted EBITDA was RMB 41 million compared to RMB 32 million in the same period of last year. Store+ revenue decreased by 17% to RMB 657 million primarily due to ongoing efforts to enhance order quality to improve margins. Adjusted EBITDA loss for Store+ was RMB 67 million, which was significantly lower compared to a loss of RMB 102 million for the same period of last year. Q2 revenue for BEST Global was RMB 193 million, almost tripling from the same period of last year as we continue our strong growth momentum in Southeast Asia. Adjusted EBITDA for Best Global was negative RMB 48 million compared to negative RMB 32 million for the same period of last year as we continue our investment to ramp up operations in Thailand and Vietnam, and to launch our network in Malaysia, Cambodia and Singapore.

Next, let's look at major operating expense items. Compared to the same quarter of 2019, selling, general and administrative expenses increased by RMB 28 million to RMB 519 million. The increase was primarily attributable to losses on disposal of fixed assets due to upgrades of our equipment. R&D expenses decreased by RMB 12 million to RMB 48 million, which was primarily attributable to capitalization of certain R&D expenditure to intangible assets as well as reduction in travel expenses. Please note, all of these expenses excluded share-based compensation. We will continue to optimize our SG&A and R&D expenses to improve our operating efficiency, and we expect further benefit from operating leverage as our business grows.

CapEx in the second quarter was RMB 424 million or 5% of total revenue compared to RMB 381 million or 4% of total revenue for the same period of last year. In addition, we are working on cost improvement programs to streamline CapEx and to reduce expenses. Our results in Q2 demonstrated that through consistently improving operating efficiency and expense management, we can well achieve balancing top line growth and the profitability. Despite this period of economic uncertainty, we are well positioned to grow our business and continue to drive value creation for our shareholders.

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

Thank you for joining the call. So we can open the Q&A right now.

(Operator Instructions) And the first question we have will come from Baoying Zhai of Citi.

Hi, good morning. Congratulations on the strong second quarter results. I have 2 questions. First is regarding the second quarter results on the Freight segment. I noticed a very strong transportation cost control in the second quarter. So wondering besides the tailwinds from the toll waiver and the lower fuel costs, what's the other reason behind the transportation cost coming down so much? Is it because of the product mix leading to the lighter average weight or anything else? Because it's down almost 30% year-on-year in second quarter? And my second question is regarding the competition strategy for the Express segment because we were intentionally slowing down a little bit in terms of the volume growth for better profitability and business sustainability. But looking forward, we are seeing more new entrants come into the battlefield. So what's our counter strategy? We still put the profit ahead of market share now or we are shifting our strategy to grabbing more market share in the next few quarters?

Thank you, Baoying. Thank you very much for good questions. With regarding to Freight, yes. So second quarter, we actually benefited from multiple fronts, right? One is that like, as you said, fuel pricing and also the government policy at the earlier this year to combating the COVID-19 has waived the tolls for the highway. Even though the only benefit in April or a few days of May, but that does give us a good cost reduction there. But second, as you said, the product mix and stronger growth also contributed to the cost reduction. We grew about more than 28% in the volume year-over-year as well as our product mix, our e-commerce-related products has increased. That typically has a lower weight on -- and also has a higher income per kilograms in that. So basically a combination of that. And on second one for the Express, yes, so we are continuing to drive for efficiency and the cost reduction. But meanwhile, we want balancing the profitability and sustainability of growth rather than purely just for market share. So going forward, what we are going to do is, first of all, we continue to reduce the cost into efficiency as we demonstrated quarter-by-quarter. Meanwhile, we want to see who can have more synergies with our other business units, such as Freight. They can share a lot of hot routes and a lot of other on cost. And so synergies will be more applied to. In fact, that we already have saved a lot of money in the last couple of quarters or last year for that reason. We've shared a lot of synergies with other business units.

So moving forward, we continue to anticipate and expecting a strong revenue and strong parcel growth and volume growth as well as improved efficiency as well as the profitability.

All right. Johnny, thanks for your response. Follow-on the average weight of the Freight now, in second quarter actually?

Second quarter average weight is close to about 115 to 120. And typically, on the -- yes, 120, around 120. And typically, on the fourth quarter will be a little bit lower. Second quarter will be a little bit lower. Third quarter will be a little bit higher. Reason is third quarter typically is a low season. And we will probably get some heavier shipment to balancing our load on the truck. So above 100 to 120.

How is the year-on-year trend on this?

Last year, we -- in 2019, we reduced that by about 10 kilograms in average -- 10 kilograms average for the Freight. This year, probably it will be another 10. So we are moving towards about 110 towards the end of the year.

Okay. Understood. And on the second question, may I further clarify with the target. So in the next few quarters, we target to be in line with the industry growth? Or will we want to surpass the industry growth a little bit? I know we are very focused on the cost efficiency.

Yes. So okay. So I think we have a, I guess, what's going to be industry growth, but we really don't know exactly what's the third quarter and fourth quarter industry growth going to be exactly. But presumably, it's still going to be strong, looking at the June number. So yes, so our target for the third and fourth quarter is anywhere between 25% to 30%, somewhere around -- as we planned it last year. So we don't exactly say we want to ahead of the market because we don't really know what the head market is. But I think the 25% to 20% is fairly strong growth. Let's put this way, we'll grow faster than second quarter. Yes.

Okay. Understood.

The next question we have will come from David Ross of Stifel.

On the Express business, I wanted to see what you think the floor might be on pricing? As the package volumes grown, we've been talking about this for the past couple of years. And again, in this quarter, average price per piece was down 21.5% year-over-year. How much lower can it go?

Okay. Okay, Good evening, Ross. David, I assume you are in U.S.?

Yes.

Okay. So thank you for joining the call. You're quite late there. Yes, good question. The Express floor, price floor, okay? So this year, as everybody noticed, that's like a much lower price comparatively from the last couple of years. Last couple of years may have like price reduction in 10, 20, low teens. But this year, it's quite large. Partially because of COVID-19 from the recovery of COVID-19, and people wanted to recover the network quickly, so probably lower the price. Second is that also during February, basically government gave the toll waivers and toll waiver -- the toll waiver, basically toll is about 30% transportation cost. Transportation is about 60% of the total -- transportation -- total cost for the parcel. So you're talking about 18% to 20% on cost-saving on the toll waivers. And so they contributed also to the -- lower the cost and some of the pricing -- severe price reduction, which you have seen. We anticipate pricing continue to go down, but it's not, it's not going to be as steep as this because essentially, all the -- in end of day, all your costs are going to be having a limitation, right? Given that how much the fuel costs are going to be, given that how much toll and everything else, and that's all going to be there. It's not going to disappear. So yes, so I think the cost reduction is still going to going there. I mean, we're still looking at the year-over-year cost reduction targets. But as it goes, the cost reduction is going to be diminishing return, right, because essentially, you perhaps hold out. But also, I think the floor -- the pricing floor is also going to be [sorted] (corrected by the company after the call) out. I cannot tell you exactly what it is. Is that going to be RMB2, below RMB2 or where it is? But I can say is that cost reduction can continue. But however, cost reduction is going to be slowing down. And I can say that competition is still going to be there, but pricing is still going to be lower. But honestly, I don't know where the floor is, but I would anticipate that the floor is going to be lower than today's, but not as much steeper as what we have experienced in the last quarter.

That's helpful. And then on the volume side at Express, it was up 19% year-over-year in the quarter. How did it progress through the quarter? Was April not as good and then May and June are much stronger? And where do we sit here in July? Just kind of frame that 19% for us, is it actually better than that? Is that...

Okay. Yes. So yes. So April, we actually grew about 14% or 13%. And June, we grow about 26%. So looking at July right now, we are looking at about anywhere from 25% to 30%.

Excellent. And then last question, I just saw a headline about JD.com buying interest in Kuayue Express. Does that mean anything to the competitive landscape?

Kuayue Express has no direct business overlap with us. They are more on the high-end air travel, air-based parcels or the freight. So yes, so it will have a minimal impact to us.

And next, we have Ronald Keung of Goldman Sachs.

So 2 questions from me as well. Firstly, would be just, how -- again, on the Express pricing strategy, I mean we've cut prices by 20% and parcel growth relatively was slower versus, say, the other Yunda's and YTO that have cut prices by 30%, but kind of hanging in there with similar growth as ZTO in the second quarter. So we could see how -- what we're choosing between kind of profitability and market share gains much here in the second quarter. I think into the second half, and given, I think this is still quite a scale game because we can't grow materially slower. So I think if you're targeting in line growth with the industries, we expect kind of the ASP differential between you and the players to be more similar into the second half. So overall price declines may be smaller for the others as well. But just that we will not be kind of pricing kind of less -- 10% less in pricing decline, maybe -- is that likely more that will be kind of a bit following the rest in the second half and then achieving kind of industry growth rates into the second half, that's the first question. And then for the second, could you kind of give us some metrics on your kind of franchisees -- health of franchisees, any kind of turnover ratios that you could share and how are we seeing just these new entrants, including J&T that's coming in, do we see that could impact any of our kind of franchisees or the credit landscape into the second half?

Okay. So basically, you have 2 questions. One is about the second quarter pricing strategy and growth strategy. Yes. So as you rightly pointed out, our peer players, they actually had a steeper pricing reduction than what we had done. Partly because we wanted to really improve the margin and have profitability there. Moving to the second quarter, we still wanted to maintain our strategy to balance volume growth as well as the profitability. So I don't think we can -- we aren't going to meet the price just for the sake of share. Because I think the more important currently is consolidating our ability to cost reduction and improve quality in some other areas. This volume is always going to be there. If it is not here today, when you do a better job, you can always get it back. So I think our strategy to answer your question is no, we are not going to lower the pricing furthermore, in fact, if you look in the last couple of years, the third quarter and towards the end of the third quarter and fourth quarter, the actual price go up, goes up a little bit, goes up a little bit because the high season, everybody expecting huge volumes are much bigger than July. And July is typically a lowest season than July and August. So fourth quarter, I think the pricing is going to be not much lower, but I think it may be improved somewhat. That's to my first question -- your first question. Second question is to the competitive landscape of new entries and -- new entrants and these. As you all know, right, the market is very competitive. In the past 10 years, we're in this business. Every year, we invested a huge amount of money and efforts in upgrading automations and the sites and everything. And in fact, if you build a site, you're looking for a new site, it takes a long time as well. So it requires time to build all the network and everything else. So I don't really -- I really don't think that, that new entrants will have a significant impact to our current business. Back to what you said about the stability of our franchisees. I think of course, in this kind of competitive market, when the pricing are lower, last-mile delivery fees are lower, some uncertainties or some kind of problems within the franchise network is anticipated. However, we have done a good job maintaining communication and actually working with the franchisees to make sure that they can also work with the company, to weather through this competitive market. In fact, some of the franchises are, through this -- their cost reduction and efficiency improvement, they actually become stronger in competitiveness. So given that, I would say that the franchisees is really stable. We will see a few of them may have some problems in the May and June time when the last-mile delivery cost was lower, but that was quickly stabilized. And so far, we don't see a major problems with the franchise network. In fact, as you said, new entrants comes in, and we don't see a -- at least I don't aware a large amount of franchisees joining the new entrants because they understood that it would take lots of effort to really get network up. So they rather be working with the company and Best to further develop, and really protect investment in the past.

Next we have Thomas Chong of Jefferies.

I have a couple of questions regarding our domestic and international business. I think first, can management comment about our sorting hubs target in 2020. And also our thoughts on increasing popularity, talking about the 1-hour delivery, any thoughts there? And my second question is about our international business. How should we think about the next few years, the KPI that we want to achieve, given a lot of geopolitical tensions, as well as COVID?

Okay. Thank you, Thomas. I have a little bit difficult to hear well on the first question, but I guess your question is, what's our expectation of the number of hubs during the year, right? So we right now maintain about self-operate about 87 hubs in all. There are some smaller hubs that we may want to consolidate, but we might want to open 1 or 2...

(technical difficulty)

Excuse me, we'll to try to reestablish connection here. Again, please stand by, we'll try to reestablish connection with management.

This is Thomas. I'm here.

That's the hub I answered. On the International front, I'll give you a little bit color. One is that international is actually growing very rapidly. So like I just said in the U.S., actually, the second quarter, we see our volume -- both our volume and the bottom line actually improved much more than expected. Southeast Asia also growing very rapidly. As demonstrated on the second quarter, let's say, our Thailand, was growing about 90% quarter-over-quarter. Vietnam was like over 50% year over -- quarter-over-quarter. But we also see new entry to the Malaysia, Singapore, they are also growing very rapidly. So that's the second front. Thirdly is that what we really see is that a big trend on the cross-border business. So a lot of merchants, they open shops in Southeast Asia, in Lazada shopping, et cetera. They actually purchased most of their products in China from Yiwu, Guangzhou, Dongguan, et cetera. Then we shipped to the Southeast Asia. And so our supply chain group, supply chain management group, they're doing a lot of this work with, for example, with local government in Kunming, Yunnan Province, Guangxi, and Nanning to open the route through the road transportation through the land to the Vietnam and to the Thailand. Previously, most of these transportation are done through the sea freight or air freight, but now to open another front through the land lines. So I would see -- anticipate our supply chain is also going to be benefited a lot over collecting products in China and over ship to land transportation or seas to the Southeast Asia into the ground. So we will continue to manage our cost structure. Initially, we have invested a lot of equipment and CapEx into Vietnam and Thailand, like we just did in China in the past. And then actually, as the volume goes up and the per-parcel cost goes down a lot. So we're anticipating 2 things: continued fast growth on the top line and improvement on the per-parcel cost to overly reduce the losses in the global business. And hopefully, in the next year, we will see a much balanced result on that.

The next question we have will come from Eric Zong of Macquarie.

I have 2 quick questions. So one is -- regarding the last-mile delivery fee in Express delivery business. So we saw that last-mile delivery fee was RMB 1.2 per parcel, which was much lower than a year ago, was lower than the first quarter. So just thinking about the longer term, I think, I just want to know your view, like what's the floor for last-mile delivery fee going forward in the second half of next year? And would you like -- maybe we can say last-mile delivery fee going below RMB 1 per parcel over next year? Yes. Okay. That's my first question. And the second question is regarding your Store+ business spin off-plan. So do you have any news towards that development?

Okay. Yes. So last-mile delivery fee reduced compared quarter-by-quarter or compared to last year, primarily driven by 2, right? One, as the volume grows, you're getting more density for delivery. So definitely, your cost is going to be -- per parcel is going to be lower. Imagine the area where we're getting 1 parcel or 2 parcel, so cost-wise, it's going to be improved. The second is because of severe competition, more and more last-mile delivery is through the post, through the stores or some other kind of mean lockers, the parcel lockers and stuff like that. In the past, last year, I think only 35% of the parcels were delivered through the last mile -- other means of last mile, through lockbox, through the other stores and et cetera. But this year, it already increased to 50% or 60% and in fact, the portion is still increasing. But that has a much lower cost structure compared with delivery on the door-to-door. Because think about a delivery person carry 50 parcels going to a lockbox, the cost is going to be much lower again, to deliver 50 box parcels to 50 families door-to-door. So that's the thing. So your question was where is the floor? I think that that has to continue lower. I cannot say that should be RMB1 or less, but what I'm saying, the trend is continue to be gradually lower. As I said, the 2 last reasons or factors. One is the increasing volumes lowered the cost. Second is more means of last-mile delivery versus in-person door-to-door type delivery. Would that be lower than RMB 1? It's possible, but I'm not going to guess when is it going to be. It also depends on the franchisee's acceptance and stability. We wanted to maintain a healthy, stable last-mile delivery network and make sure that the franchisees are all stable and they can be of good services to our customers. The second question you had was a spin-off some of the business units. As you -- we had said in several calls that the company, the management team continues looking for various ways to improve the shareholders' value as well as the business development, liquidity and the further development of business that we think is going to bring future growth opportunities for the company. As we did for Freight, right? We were the first one really in early 2012 that started the Freight business. And we right now bearing the fruits after 6, 7 years of development. Since last year, the Freight business is growing rapidly is also making profit and profitable. So hoping that our international business as well as our store business is going to contribute to our long-term growth and profitability. Meanwhile, it created a lot of synergies between our -- for example, our Store+ with our supply chains. On the global -- with our supply chain as well as Express and Freight. So hopefully, that's the thing. So we continue to look at these opportunities. But we don't have anything to report right now. We'll certainly let you know when more is solid. So Eric, thank you.

And next, we have Hans Chung of KeyBanc.

I have 2 questions. First, still regarding the balanced strategy on the pricing and growth in Express. So I think that scale still matters a lot in the Express industry. And then -- so my question is, how should we make sure -- because I think that going forward, it should be whether we can reduce our cost faster than the price decline, right? So I think going forward, how should we make sure we can continue to achieve the faster cost reduction without, I'd say, maybe to keep the in-line industry growth or maybe even slower, and, let's say, in the medium to longer term. And then third question would be regarding the Thailand market, can you give us like what kind of competitive landscape in that market? Like what's our market share now? And then what's the unit economy so far? And what should we think about that in next 1 to 2 years?

Okay. Thank you, Hans. You have 3 questions. The first question you had was on the strategy on pricing. Yes. So our pricing, as we said, we want to make sure that the pricing is in line with our cost reduction strategy, right? So we wanted to make the margin improvement as well as the profitability. So we're not going to say blindly follow the pricing on the market or the others. As we demonstrated on the second quarter, even though our volume growth has been impacted somewhat, 19% versus - more than - market growth of more than 30%. But we maintain a very healthy pricing. Our pricing is literally look at June number, second quarter, we're pretty higher. We're higher at the ASP than some of our peers. So yes, so pricing side, we'll maintain that strategy, right, doing the cost reduction, that means that we will improve our margin on that. So that leads to your second question. So what's the cost reduction strategy, right? So you say your pricing is based on your cost reduction. Well, cost relations from -- mainly from 4 areas, right? Largest is transportation because transportation, if you look at our second quarter, we have about less than RMB 1 total cost, right? So the transporting cost is about 60% of it. Given our third quarter, maybe even a little bit more than 60% a bit, because the waiver for the toll, everything is gone. So let's say, transportation side. So we have been doing a good job to continue to lower the transportation cost primarily driven by 3 things, right? Our volume growth, of course, one of them, that's most obvious. But second is really through a more dynamic routing. We have an R&D team for the industrial engineering, and they're working on the system. We already have a system in place. So they can dynamically really do a routing, so make sure that our routing are most efficient. So that's second. Use technologies, so we're using the automation for the routing efficiencies. And the third is basically synergies across with our other business units. For example, Freight volume is very large already. We are actually doing currently, we're doing like about 28,000 tonnes a day. That translate to, equivalent to a similar type of network of same sizable network as the Express. So how do you combine some of these transportation routes, especially to remote area, a long distance area, which timing -- delivery of timing is not critical. And you know what, you have 2 or 3 days to work on, how you're combining them on some of the routing efficiencies to reduce the total cost for both Freight as well as for the Express. So we started a project last year for merging of Freight and Express on the transportation side. We just started. I think we have a lot more to go to make sure that the cost can be reduced. Meanwhile, the service level can be maintained, so not to [sacrifice] (corrected by company after the call) the transit time or anything else and make sure that our delivery time and transit time is going to be maintained. So that could be looking forward to reduce some more costs on that front. Yes. So the third is on Thailand market, I'm sorry. The Thailand market, Thailand is actually -- in the past, Thailand, actually the offline market. It's actually well-developed through like 30, 40 years of development. Off-market is well developed. But since couple of years ago, I think I would say 2018, starting the e-commerce growth very rapidly. Even though they only have a 3% penetration of online for the total consumption, but that's growing every year, 30%, 40% for the past couple of years. So I think that, that trend is only going to be accelerating. Our market position, we entered the market a little late because there are several local players and some other international players already there. But however, our market share has been growing very rapidly. We entered Thailand market in, I think, was in early 2019. So we then basically landed the first group people 2018 into Thailand in late 2018. We started building up the network of 2019 and start building on top of that. As on the June, our peak volume already exceeded like 200,000 [parcels] (corrected by company after the call) and still growing very rapidly. So hopefully, by end of the year, we will be moving on much higher volume ground.

Meanwhile, the market share continues to be growing. We started [1%] towards the end of last year to now, it's a little bit shy of 5%, but it's still growing. So I'm sure that in the next couple of years, we will grow fast. Our basic philosophy or the strategy is that for the Southeast Asia market for every market we enter, we want to be on top 3 players in the next couple of years. So that's our goal. And some may be top 2, some maybe top 3 and some maybe top 1, but that's just our strategy and target.

Well, at this time, we're showing no further questions. We'll go ahead and conclude the question-and-answer session. I would now like to turn the conference back -- call back over to the management team for any closing remarks.

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.

And we thank you, sir, and also to the rest of the management team for your time also today. Again, the conference call is now concluded. At this time, you may disconnect your lines. Thank you, again, everyone. Take care, and have a great day.