ZTO Express (Cayman) Inc (ZTO) 2026 Q2 法說會逐字稿

Good day, and welcome to the ZTO to announce second quarter and half year 2026 financial results. (Operator Instructions) Please note that this event is being recorded.

I would now like to turn the conference over to Ms. Sophie Li, Company Secretary. Please go ahead.

Thank you, Chuck. Hello, everyone, and thank you for joining us today. The company's results and Investor Relations presentation were released earlier today and are available on the company's IR website at ir.zto.com. On the call today from ZTO are Mr. Meisong Lai, Chairman and Chief Executive Officer; and Mrs. Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Mrs. Yan, who will go through the financials and guidance. They will both be available to answer your questions during the Q&A session that follows.

I remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties and factors is included in the company's filings with the US Securities and Exchange Commission. 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 law.

It is now my pleasure to introduce Mr. Meisong Lai. Mr. Lai will read through his prepared remarks in their entirety in Chinese before I translate for him in English.

(spoken in foreign language)

Thank you, Chairman. Now let me do the translation first.

(interpreted) Hello, everyone. Thank you for joining today's conference call. In the second quarter of 2026, the express delivery industry grew 4.2% in volume year-over-year as anti-evolution policies continue to gain traction, competition became increasingly rational and the overall industry pricing and profitability experienced a steady recovery. The industry is fundamentally shifting from its previous singular focus on scale and the price wars towards greater emphasis on value creation, network stability, and tangible benefits for frontline partners.

ZTO made solid progress across key operating metrics in the second quarter. Parcel volume reached RMB10.49 billion, up 6.5% year-over-year. with market share expanding by 0.4 percentage points, entrenching our industry leadership position. Adjusted net income was RMB3.0 billion up 50.3% year-over-year. We are affirming the resilience of our profitability. Retail parcel volume grew 47% year-over-year. As our higher value and diversifying value-added service continue to scale up increasing value revenue diversity for our network outlets, while facing temporary cost pressures caused by oil price fluctuations during the quarter.

Our end-to-end digitization that intelligent transformation, combined with refined operational execution, enabled us to lower the combined unit cost of transportation and sorting by $0.02 over last year. preserving cost competitiveness that were forged over the years.

ZTO's second quarter performance is the outcome of synergies across five core aspects, which are productive policy guidance, unwavering long-term strategic focus solidarity and concerted efforts by network-wide partners, continuous increases in operational efficiency and improving product structure. It also owes much to the hard bone contributions by thousands of (inaudible) operation operators and frontline delivery workers network-wide.

First, regulatory direction remains clear and anti evolution policies were being consistently implemented. ZTO stands firm to safeguard a healthy competitive order balances the interest of headquarters franchisees in frontline practitioners and commit to fostering a sustainable ECO network with equitable shares of benefits for all stakeholders.

Second, the company maintains a long-term mindset that discourages permanent short-term scale games and the continuously consolidated foundational strength for its mid- and long-term development. We regard steady profit increases for network allies, sustained earnings growth for frontline careers and healthy corporate development as our core operating objectives and we continue to deepen our initiatives surrounding three key priorities: market share expansion, service quality upgrading and end-to-end cost reduction.

Third, the entire network were unified with strategic alignment and increasingly advocate fairness and the transparency in network policy making and implementation. We have an objective view on regional economic disparities and have further streamlined the grassroot feedback by tailoring incentive schemes and support resources to match all its actual operating conditions. We have further optimized the profit distribution mechanism at the gross level through performance-based remuneration. Hence, steadily elevated the overall profitability and operational stability of the entire network.

Fourth, we are extending our know-how for efficiency gains to outlets. We have built a standardized and ongoing operational data analytical system to enable performance visibility and traceability. We continue to enhance loss mile of efficiencies through direct linkages reducing organizational layers and expand profit margins.

Fifth, we continue to enhance our tiered high-value business portfolio by penetrating defer into retail parcels and reverse logistics, which optimize the mix between standard e-commerce parcels and value-added services. This also hedges against the potential single source fluctuations and strengthen the resilience of network profitability.

China plus delivery industry is progressing from high quantity competition to high-quality and sustainable development. Focusing on the strategic principle of achieving high-quality service, high-quality market share and low end-to-end costs, ZTO will further offer tasks in the following five key areas. First, continue to save for the environment of fair competition. We will adhere to regulatory guidance and take on a leadership role in maintaining industry's overall competitive orders.

Second, improved integrated competitiveness in service, market share and cost. On service, we will focus on store-to-door capabilities to build a clearly differentiated brand awareness. Our market share, we will refine customer segmentation, increasing the proportion of small- to medium-sized customers and value-added services. On cost, we will establish benchmark for comparable outlet and pass through the what and how of efficiency gains to the end lots.

Third, improve consistency of managerial capabilities across the network. We will standardize policies and customize improvement plans for loss-making outlets. By pushing down digitalization efforts, we will empower franchisee partners to reduce cost and grow revenue. We will encourage top-performing outlets to scale up and support struggling always in overcoming adversity to foster and network of mutual benefit and shared prosperity.

Fourth, deepened digitization, design and implementation. We will roll out hands on training across the network, effectively utilize utilizing tools to narrow gaps in volume cost and service. We will also proactively align the demand and capacity through careful planning.

Fifth, ensure comprehensive safety management and protect the grassroot rights. Regular safety inspections will be conducted to identify and eliminate hazards, enforce accountability at all levels and establish strict compliance boundaries such as safety, labor practice and taxation. We will continue to refine carrier incentive and compensation safeguarding their legitimate rise and interest.

Over the past two decades, we have overcome adversity and weathered intense competition. We have always been clear minded that scale is merely an outcome and quality is what truly matters. We are committed to our development principle that integrates service quality market share and reasonable profitability. We practiced our philosophy of shared success, and we firmly believe that the headquarters, ales and couriers are interdependent part of Unity.

Only when all parties collectively improve operational efficiency and increase shares of benefit, the entire network can then achieve lasting stability and long-term success, guided by our mission of bringing haves to more people through our services, supported by a solid infrastructure foundation and sound financial strength.

We will continue to harness digitization efficiency, maintain and strengthen cohesiveness and the stability of our partner network. We are confident and capable of achieving steady sustainable growth across the entire network. Navigating through industry or economic cycles and creating lasting value for industry participants and our investors.

Now let's invite Ms. Yan to present the financial results and guidance.

Thank you, Chairman Lai and Sophie. Hello to everyone on the call. As I go through our financials, please note that unless specifically mentioned, all numbers quoted are in RMB and percentage changes refer to year-over-year comparisons. Detailed information on our financial performance, unit economics and cash flow are posted on our website, and I'll go through some of the highlights here.

In the second quarter, our long-term profitable growth strategy delivered solid results. Anti-evolution regulatory efforts and our resilient franchise network continued to drive steady market share expansion with industry-leading efficiency. Our parcel volume grew 6.5% to RMB10.49 billion with a 0.4 point increase in the market share. Total revenue increased 23% to RMB14.5 billion, while operating income rose 30.4% to RMB3.23 billion.

Adjusted net income grew 50.3% to RMB3.1 billion, benefiting from a RMB344.3 million tax refund as our wholly owned subsidiary qualified for a 10% preferential tax rate for tax year 2025. ASP for our core express delivery rose RMB0.19 or increased 15.5% and driven by a RMB0.17 positive impact derived mainly from increased KA volume mix, which included higher value reverse logistics and a RMB0.02 increase from higher average weight per parcel.

Total cost of revenue was RMB10.8 billion, which increased 21.7%. Overall unit costs for the core express delivery business increased 14.6% or $0.12, which includes KA cost increase of $0.14 that was consistent with the strategic increase in KA volume. Despite cost pressures stemming from the rise of oil prices, our combined unit sorting and transportation costs decreased by 3.2% or $0.02, thanks to digitization and lean operations.

Specifically, unit cost of line haul transportation decreased by 3.7% to $0.32, reflecting optimized route planning and enhanced bill rate efficiency. Unit sorting costs decreased to 0.6% to $0.24 benefiting from continued improvements in labor and automation productivity.

Gross profit increased 26.8% to RMB3.7 billion and gross profit margin rate increased by 0.8 points to 25.7%. SG&A expenses, excluding SBC, decreased 10.5% to RMB555.5 million. SG&A, excluding SBC as a percentage of revenue declined to 3.8%, reflecting strong corporate cost efficiency. Income from operations increased 30.4% to RMB3.2 billion and associated margin increased 1.3 points to 22.2%.

The operating cash flow totaled RMB4.6 billion for the quarter, primarily attributable to higher operating profit, lower financing receivables and interest income realized upon maturities of long-term financial products and favorable terms on sizable fuel payables due for payment in the next quarter. Adjusted EBITDA increased 20% to RMB4.2 billion. Capital expenditures for the second quarter totaled RMB952 million, and we anticipate the annual CapEx in 2026 to be around RMB6 billion.

Now moving on to our guidance. Considering the current economic conditions and anticipated industry parcel volume growth we have updated our full year parcel volume growth guidance to 6% to 10% year-over-year, representing a parcel volume range of RMB40.83 billion to RMB42.37 billion. These estimates reflect management's current preliminary view and are subject to change.

Now this concludes our prepared remarks. Operator, please open the line for questions. Thank you.

(Operator Instructions)

[Steve Coy], Goldman Sachs.

(spoken in foreign language)

I'd like to ask a question about AI-driven efficiency gains. So I've noticed that the company has deployed 3D Digital Twin and make machine vision technologies at it sorting ups and upgrade voice customer service and network outlets as well as accelerate regional management position making. Could you share rides high-level strategic thinking on digitalization as well as AI as well as your thoughts on the specific use cases in the operational workflows and where it's been implemented.

(spoken in foreign language)

Thank you, Chairman. And now let me translate for CTO.

(interpreted) The core value of the AI lives in leveraging data from over 100 million data transfer and our mature network operations to continuously optimize network-wide costs. It creates a self-reinforcing loop of lower cost and higher efficiency, building digital technological mode that is not easily replicated. Today, AI runs through the entire chain from pickup to delivery and has translated into tangible gains, specifically as following on the hub side or the superstation side.

In transportation, our proprietary intelligent routing and dispatch system now covers six most common scenarios. By optimizing routes, it unlocks idle capacity and drives improvements in low rates and shortened transit times. Route coordinated parcel volume grew 120% year-over-year and stranded parcels fell 15%. In the first half of 2026, the cost saving achieved by AI in transportation accounted for about 10% of the total reduction in transportation costs.

In transit, our Smart Park system now covers all transit centers nationwide. Vision monitors operations in real time flags 28 types of anomalies from congestion to (inaudible). Working with on-site alerts and 3D visualization dashboards, it closes the loop from detection to resolution. Unloading efficiency rose 4% and anomaly traceability coverage reached 88.4%. In management, our proprietary data agent now serves more than 2,000 managers at headquarters and provincial offices, fixing the problem of static reports and after the fact manual data pools, thus cutting the time for routing analysis by more than 90%.

Now on the office side, in picking up and delivery, our precision address system now covers more than 250,000 frontline couriers with building-level location accuracy of 99.98%. It supports dispatch applications from order grouping to route optimization, and its accuracy keeps improving as business volumes continue to grow.

On the AI customer service front, more than 90% of merchant inquiries and ticketing are now resolved through AI self-service effectively lowering labor costs.

On the consumer side, with AI stepping in earlier, customer satisfaction has risen from 80% to nearly 90%.

On the management front, building on the data agent, we now push standardized best practice playbooks to more than 6,000 outlets across our network with a response rate of 88%, narrowing the capability gap across outlets and enabling proven management practice to be replicated in scale. AI has become a core strategic driver for CTO.

Looking ahead, we will continue to deepen the integration of AI across our operations. covering technological breakthroughs in converting technical breakthroughs into games in both efficiency and service quality to further solidify our market leadership.

Qianlei Fan, Morgan Stanley.

(spoken in foreign language)

Let me translate for myself. Congratulations on a very profit growth in the quarter. I have two questions. The first question is about the reverse logistics process. It's encouraging to see that the retail parcels have contributed a solid foundation for our profit growth. Just wondering, in terms of daily volume, what -- where are we now? And what's the implied year-on-year growth? Do we have any target towards the peak season of this year and next year.

The second question is about the social insurance. So this -- in this year, we start to hear more discussion about the full social insurance contribution implement patients gradually pushed by regulators. Wondering what's the potential impacts on our costs and operations. Specifically, historically, we have seen that industry-wide cost inflation could be pass through by industry-wide price hikes. Do you think if there are any cost inflation related with this full social insurance contribution the industry has opportunities to pass that cost inflation through?

(spoken in foreign language)

Thank you very much for your question. Let me translate for our Chairman.

(interpreted) The rapid growth of our retail parcel business, particularly reverse logistic parcels is a key component of ZTO's high-quality strategy in product diversification. It demonstrates our leadership in customer service and quality as well as the stability of our network.

In the second quarter, average daily retail parcel volume exceeded RMB11.87 million, of which return parcels averaged approximately RMB9.8 million each day. increased approximately 80% year-over-year. Although the price of reverse logistic parcels has declined from the past as market competition continues, we expect per parcel profitability in this business to continue to improve supported by economies of scale and refined cost control. At present, reverse logistic parcels still generates higher per parcel profit and standardized e-commerce parcels, effectively lifting the company's overall per parcel profitability.

Next year, Again, our strategy is very clear. We are seeking high-quality services, high-quality market share and we aim to improve our capability for door-to-door services, and we are focusing closely on the quality of our network earnings as well as our core years income increases. So the reverse parcel volume will continue to be a main driver for our product diversification as well as the profitability gain across the whole network.

(spoken in foreign language)

Now let me translate in supplemental needed.

(interpreted) With the critical data sharing system being implemented, regulators' plans to advance to a multitiered social security system for flex work arrangements, including express delivery personnel. Together with entire evolution policies, these efforts aim to standardize employment practice, protect frontline workers' rights and interest and drive high-quality industry development, which are consistent with CTO's core belief.

The policy adopts an approach of a stepped rollout. Social insurance contributions are being enforced for personnel with formal employment relationships, whereas occupational injury protection is being expanded for flexible workers. From the beginning, the company has consistently upheld the core philosophy of shared success placing great importance on protecting the interest of our network partners and frontline workers.

In our own workforce management, we have always adhered to industry practice boundaries, steadily improving our employment system and encourage our network partners to provide legitimate rights of the frontline workers. We welcome the regulator's guidance on social security contributions for couriers, addressing -- and also are actively encouraging and helping our network partners to address challenges for unique flex work arrangements, while the rollout of standardized social security initiatives will inevitably bring about end-to-end cost increases in the foreseeable future.

Over the long run, complete coverage will strengthen network stability, reduced career turnover and further reinforce a large mile service quality. CTO will continue to stay at the forefront of the industry as it moves toward higher quality development for the long term.

Aaron Luo, UBS.

(spoken in foreign language)

Let me translate for myself. The first one is regarding our new full year volume guidance. I'd like to seek a bit more of your insights on the industry's second half growth outlook and our company's strategic plan for the second half. And also on the cost side, do we have any cost guidance for the future? And what is the sensitivity of our cost to oil prices?

(spoken in foreign language)

Now let me translate for the first part of the question.

(interpreted) As the entire evolution policy continued to take effect in the first half of the year, the express delivery industry has undergone a period of adjustment and has gradually shifted away from price-led scale expansion to quality-driven development, leveraging operating efficiency. Looking ahead, the industry's transformation will continue to deepen focusing more on improvements in service quality and operational efficiency.

We anticipate the parcel volume growth for the entire industry to be at stable or steady level. As industry shifts towards high-quality development, the company remains committed to a sustainable long-term mindset rather than seeking short-term scale expansion. For us, the core of high-quality development comes down to increasing profitability of outlet, rising income by careers and healthy increasing profit for the company.

Strategically, we will continue to focus on these priorities, growing effective market share, building differentiated service capabilities and advancing end-to-end lean operations. While solidifying our leadership in parcel volume, we will place greater emphasis on winning high-quality market share and maintain some profitability, continually shoring up our foundation for competitive growth for medium to long term. If I may supplement the -- when you asked about the volume and the price, again, we will be watched closely to what the industry's development is, as our goal continues to be growing and expanding our market share leadership.

(spoken in foreign language)

(interpreted) The cost performance in the second quarter due to rising fuel prices, which put pressure on transportation cost and impacted per parcel transportation cost by approximately RMB0.02. Thanks to continued implementation of efficiency gain initiatives, which includes Smart tool combined unit transportation costs and sorting costs declined by RMB0.02. Specifically on the transportation costs, in the second quarter, transportation costs per parcel was RMB0.32, down RMB0.01 year-over-year. The rising fuel costs added roughly about RMB0.02 to cost per parcel.

On the cost reduction front, first, we further implemented digitized smart tools using our proprietary intelligent dispatch system to forecast shipment flows in advance, optimize shift scheduling, we find low capacity structure and route planning in real time while making prudent use of assisted driving system to shorten transit time duration and effectively lower cost.

Second, we refined our low rate metrics and assessment mechanism, rolled out tiered loading rate incentives.

Third, we continue to strengthen fleet management, consistently refining standardized cost model as we bench -- use it as a benchmark to incentivize our drivers.

Fuel cost impact on the transportation cost diesel cost, everybody knows that it rose around 24% in the second quarter, which put pressure on line haul transportation costs. Looking to the second half, the global environment remains highly uncertain. Unit oil price pullback meaningfully. We expect -- the oil price are not necessarily going to pull back meaningfully. So we expect full oil price continue to weigh on per parcel transportation cost by about RMB0.01 to RMB0.02.

To counter the fuel price volatility, we are leveraging our opportunities reserve of oil at a lower cost and to offset and then also continue to expand our fleet of natural gas trucks as well as actively exploring the deployment of electrical vehicles that is suitable for express delivery operations. To be exact because the first half and particularly second quarter, weight per parcel has increased. So therefore, really the total cost has increased for transportation. In that sense, we actually achieved more than 10% cost efficiency on transportation.

Sorting costs in the second quarter was RMB0.24, down RMB0.01 year-over-year. On the equipment front, we steadily increased level of automation with smart solutions for sorting equipment and also upgrading old equipment through real-time monitoring and early warning we improved equipment utilization. On the labor cost front, we optimized shift scheduling through station-based staffing forecast and recap procedures. So therefore, enforced accountability at the individual level for clear rewards and penalties, thereby improving labor productivity.

Cost reduction targets. We expect our core costs in transit operations to decline by RMB0.03 for the full year. beyond transient operations, we are putting greater emphasis on end-to-end cost reduction. By leveraging digital tools to strengthen outlet operations, we are confident to improve service quality and reduce overall cost to help with our end-to-end total cost reduction for the entire year. I hope that answers your question.

Thank you so much.

So I believe this takes us to the bottom of the hour, and we thank everybody for joining us for the call. We look forward to have further conversations with you to share with you our view and on the ground practice as we move forward towards higher quality development and sustainable return for express delivery participants as well as our shareholders. Thank you very much.

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