• Parcel Volume: 8.7 billion, a 15.9% year-over-year growth.
• Adjusted Net Income: CNY2.4 billion, a 2% increase.
• Total Revenue: CNY10.7 billion, a 17.6% increase.
• Total Cost of Revenue: CNY7.3 billion, a 15.2% increase.
• Gross Profit: CNY3.3 billion, a 23.2% increase.
• Gross Profit Margin: 31.2%, an increase of 1.4 points.
• Income from Operations: CNY2.8 billion, a 17.3% increase.
• Operating Cash Flow: CNY3.1 billion, a 5.9% increase.
• Adjusted EBITDA: CNY3.7 billion, an 8.7% increase.
• Capital Expenditure: CNY1.8 billion, with an annual expectation of around CNY6 billion.
• Guidance for Parcel Volume 2024: Expected to be in the range of 333 billion to 339 billion, representing an 11.6% to 12.3% increase year-over-year.

• Warning! GuruFocus has detected 3 Warning Signs with ZTO.

Release Date: November 20, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• ZTO Express (Cayman) Inc (NYSE:ZTO) achieved a 15.9% year-over-year growth in parcel volume, reaching 8.72 billion parcels.
• The company reported an adjusted net profit of CNY2.39 billion, maintaining profitability ahead of its peers.
• ZTO's end-to-end timeliness ranked number one among competitors, with declining customer complaint rates.
• Retail parcel volume grew over 40% year-over-year, driven by strengthened partnerships with e-commerce platforms.
• Gross profit increased by 23.2% to CNY3.3 billion, with a gross profit margin improvement to 31.2%.

Negative Points

• The company revised its annual parcel volume guidance downward, reflecting challenges in the low-value e-commerce package segment.
• There is an increasing proportion of low-price e-commerce parcels, contributing to price sensitivity in the market.
• Operating cash flow growth was modest at 5.9%, indicating potential challenges in cash generation.
• The company faces competitive pressures amidst economic cycles, impacting its market strategy.
• ZTO's share buyback program lacks a clear timeline for completion, creating uncertainty for shareholders.

Q & A Highlights

Q: What is ZTO's capacity plan for next year, considering the low-quality volume growth? Will the capacity growth expectation remain in the mid-teens, or will there be a shift towards focusing on the high-end market? A: (Huiping Yan, CFO) For 2025, ZTO will focus on balancing quality of services, volume market share, and profit. The priority is shifting towards regaining volume growth momentum while maintaining a reasonable profit level. The current capacity can support 150 million packages a day, and many centers are not at full capacity. The company plans to complete its share buyback program as a priority for returning value to shareholders.

Q: Given the stable profit per parcel in Q3, does the full-year guidance imply slower Q4 parcel volumes? Is ZTO focusing more on profitability than market share in the Q4 peak season? A: (Huiping Yan, CFO) The guidance reflects a balance between corporate strategies. Despite an increase in low-priced volume, ZTO maintained its pricing approach without drastic changes. The focus is on internal management and planning for next year, aiming for volume increases and reasonable profit levels.

Q: How is ZTO adjusting its network for reverse logistics with e-commerce return parcels, and what is the strategy for gaining share in this area? A: (Huiping Yan, CFO) ZTO is enhancing last-mile operations to improve retail volume and courier profitability. Initiatives include direct linkage from outlets to posts, reducing costs, and improving timeliness. The focus is on increasing retail volume proportion, which enhances courier earnings and stabilizes the network.

Q: What impact does Taobao's cooperation with JDL have on ZTO, and what is the outlook for other operating income items next quarter? A: (Huiping Yan, CFO) The collaboration between e-commerce and logistics platforms promotes a more open market environment, offering diverse logistics options. This shift does not significantly impact ZTO, as it is an open platform serving various e-commerce needs. The super VAT deduction policy has expired, affecting other operating income, but fluctuations are expected to be minimal.

Q: What is driving the high growth in KA customer revenue, and what are the future plans for ZTO's logistics parks? A: (Huiping Yan, CFO) KA customer revenue grew due to an increase in platform reverse logistics customers. ZTO's logistics parks are strategically located to enhance service capabilities, reduce costs, and improve timeliness. The company aims to lead in comprehensive logistics services by continuing to develop this co-locating model.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.