ZTO

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Transcript Summary

ZTO Express reported strong 2025 results, with annual parcel volume reaching 38.5 billion and adjusted net income hitting RMB 9.5 billion. The company is leading a major industry shift from aggressive price wars to "high-quality development," supported by government initiatives against "involution." ZTO’s Q4 performance featured a 9.2% volume increase and expanding market share, alongside a 46% surge in high-value retail parcel volume. For 2026, ZTO projects volume growth of 10-13%, outpacing the industry’s expected 8% growth. The company is prioritizing network stability, evidenced by a new RMB 200 million frontline incentive fund. Financial highlights include a new $1.5 billion share buyback program and a commitment to return at least 50% of adjusted net income to shareholders annually. Management also detailed extensive AI integration, including 3D digital twins in sorting centers that cut missorting by 60% and AI-driven dispatching that reduces last-mile costs by 20%. Overall, ZTO is leveraging its cost leadership and technological edge to consolidate the market as competition becomes more rational and value-oriented.

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ZTO Express: Robust Cash Flow Obscured by Related-Party Interlocking and VIE Structural Fragility

Full Earnings Call Transcript — Q4 • 2026-03-17

Operator: Good day and welcome to the ZTO Express Fourth Quarter and Fiscal Year 2025 Financial Results Conference Call. [Operator Instructions] Please also note, today's event is being recorded. I would now like to turn the conference over to Sophie Li, Head of Capital Markets. Please go ahead.
Sophie Li: Thank you, Rocco. Hello, everyone, and thank you for joining us today. The company's results and the 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 Ms. Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Ms. 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 in our 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 U.S. 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. [Foreign Language]
Meisong Lai: [Foreign Language]
Sophie Li: [Interpreted] Thank you, Chairman, Lai. Please allow me to translate first. Hello, everyone. Thank you for joining today's conference call. In the fourth quarter of 2025, the express delivery industry's overall parcel volume grew moderately by 5% year-over-year. ZTO maintained its industry-leading service quality during the quarter, with parcel volume reaching 10.56 billion, an increase of 9.2% over last year, and our market share expanded by 0.8 percentage points. At the same time, we achieved an adjusted net income of RMB 2.69 billion. ZTO continued to lead the industry in both scale and profitability. For the full year of 2025, China's express delivery industry achieved a steady growth of 13.6% with volume reaching the 200 billion parcel milestone. In the third quarter, relevant government agencies formally advocated against involution and promoting the protection of grassroots interest, steering the industry towards healthy and sustainable development. As a result, overall pricing stabilized and recovered, and the industry accelerated its transition toward a new stage of development focused on both quantity and quality. In 2025, ZTO achieved an annual parcel volume of RMB 38.5 billion, maintaining a steady market share year-over-year. During this critical phase of industry transformation, ZTO stayed committed to our high-quality development strategy, continuously enhanced differentiated product offering and service capability. Facing intense competition, ZTO actively responded to the government's call and took the lead in maintaining a healthy industry order. Leveraging our robust infrastructure, data-driven operations and management capabilities, we successfully safeguarded our competitive advantages in quality, scale and profitability. Our annual retail parcel volume grew by 46% year-over-year, significantly outpacing the overall growth of e-commerce parcels. In the fourth quarter, daily retail volume reached close to 10 million parcels. This product mix optimization has enhanced the brand recognition and affinity while providing strong support for core revenue growth and alleviating the impact from volume-based subsidies. At the same time, we continue to strengthen standardized operations in coordination across our transit segments, improving both operational efficiency and service timeliness. Our combined unit cost for transportation and sorting decreased by RMB 0.06 for the full year. And with a stable SG&A structure, our annual adjusted net income reached RMB 9.5 billion. Entering 2026, the express delivery industry is further reaching a consensus on high-quality development, supported by stable macroeconomic foundations and the ongoing efforts against evolution. Naturally, market uncertainties remain, and the transition towards quality growth requires deeper cultivation. ZTO will shoulder its responsibility by adhering to strategies for healthy and sustainable development. We will focus on transit and last mile capability building, continue to optimize the fairness and transparency of network policies and protect the trust and confidence. Our priorities for the next stage are as follows: first, [ uphold ] service quality to reinforce brand advantages, staying results-oriented while focusing on execution, we will integrate public and platform service indicators into performance evaluation. With accountabilities assigned to specific positions, individuals and behaviors. By targeting specific weak links and continuously optimizing our product mix, we will enhance our service capability and the differentiation to expand our brand influence. Second, keeping efforts for cost reduction and operational efficiency to solidify cost leadership. Centered around better integration from end to end. We will accelerate the implementation of direct linkage model. We will establish standardized, visualized and comparable benchmarks. And by prescribing cost reduction targets to every last mile segment and leveraging fluctuation monitoring to unlock potential. We will achieve optimal cost efficiency across transit and delivery. Third, optimize network policies and the incentive mechanisms, focus on steady volume growth and improved cost efficiency. We will rely on detailed analysis for regions with lacking market share to enhance the efficiency of cost sharing mechanisms and ensure more precise deployment of resources. Fourth, safeguard fairness to ensure network stability, secure rights and obligation of our partners while balancing profit distribution, strictly implementing better pay for better results and survival of the fittest while ensuring reasonable income for outlets and couriers. We will empower high-quality outlets and provide support in governing underperformers to protect a win-win ecosystem. China's express delivery industry remains positive, and the competition will steadily become more rational as the leading enterprises continue to turn to intrinsic value, the industry landscape will further bifurcate and the concentration will increase. ZTO remains committed to its long-term strategy of integrating service quality, market share and a reasonable profit. As the industry shifts from scale expansion to include value preposition, we must lead the way in prioritizing both quantity and quality. Only by expanding diversified and differentiated products, reinforcing our infrastructure foundation, harness the productivity of digital operations, unlocking the potential of end-to-end cost reduction and prioritizing the long-term trust and the stability of our franchisee network can we seize opportunities and navigate through cycles. For over 20 years, being our best has been the constant for ZTO amidst all changes. Building on our shared success philosophy, we will take pragmatic actions to fulfill our mission of bringing happiness to more people. We will continue to lead in this new journey of high-quality development, creating sustainable and long-term value for the ZTO community. Now let's invite Ms. Yan to present the financial results and guidance.
Huiping Yan: Thank you, Chairman, and thank you, 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 comparison. Again, detailed financial information and performances, unit economics and cash flow are already posted on our website, and I'll only go through some of the highlights here. In the fourth quarter, benefiting from the government's call against evolution, we prioritized service quality and core competency to drive sustainable growth. Our parcel volume grew 9.2% to [ 10.56 billion ] in Q4, and 13.3% to 38.5 billion for the full year. Total revenue increased 12.3% to RMB 14.5 billion in Q4 and increased 10.9% to RMB 49.1 billion for the year. Income from operations was RMB 3.2 billion and RMB 10.5 billion or decreased 7.6% and 11% for the fourth quarter and the year, respectively. As our corporate spending remained stable and efficient, we achieved adjusted net income of RMB 2.7 billion and RMB 9.5 billion for the fourth quarter and full year, respectively. ASP for our core express delivery business increased by 2.9% or RMB 0.03 in Q4. This was primarily driven by a RMB 0.15 positive contribution from an improved mix in KA volume specifically, our higher value -- sorry, our higher-value reverse logistics services, counter offsetting RMB 0.11 in higher volume incentives. For the full year, ASP decreased slightly by 1.7% or RMB 0.03. This reflects a RMB 0.16 gain from higher retail volume, offset by a RMB 0.15 impact from volume incentives and a RMB 0.03 decrease due to lower average weight per parcel. Total cost of revenue was RMB 10.8 billion for Q4 and RMB 36.8 billion for the year, which increased 18.2% for Q4 and 20.5% for the full year. From a unit perspective, while the core express delivery unit cost rose RMB 0.08 to RMB 1 in Q4, and RMB 0.07 to RMB 0.94 for the year. KA cost was the main driver of the increase, which was partially offset by transit cost productivity. The combined unit cost for sorting and transportation decreased by 4.5% or RMB 0.04 in Q4 and 8.8% or RMB 0.06 for the year, driven by economies of scale and our ongoing productivity initiatives. Specifically, unit cost of line haul transportation decreased 7.5% to RMB 0.37 in Q4, and 12.2% to RMB 0.36 for the year, reflecting optimized route planning and enhanced load efficiencies. Unit sorting costs remained steady at RMB 0.26 in Q4 and decreased 3.7% to RMB 0.26 for the full year. Automation continues to drive labor efficiency through -- will partially offset by the ramp-up and upgrade costs of new and existing facilities. Unit KA costs increased by RMB 0.13, which is consistent with the strategy -- strategic expansion of our KA volume. Gross profit declined 2.1% to RMB 3.7 billion for Q4 and 10.5% to RMB 12.3 billion for 2025. Gross profit margin rate decreased 3.7 points to 25.4% for the quarter and 6 points to 25% for the year. SG&A, excluding SBC, decreased 1.3% to RMB 641 million for Q4, and increased 1.6% to RMB 2.4 billion for the year. SG&A expenses, excluding SBC as a percentage of revenue declined to 4.4% for the quarter and 4.9% for the year, reflecting strong corporate cost efficiency. Income from operations decreased 7.6% to RMB 3.2 billion for Q4 and decreased 11.1% to RMB 10.5 billion for the year. Associated margin dropped 4.7 points to 22% and 5.3 points to 21.3% for the year. Operating cash flow surged 50.6% to RMB 4.2 billion in Q4 and reached RMB 12 billion for the year, excluding the RMB 850 million onetime franchise deposit refunds under the new business policy in Q4 last year. Our cash flow from operations remains robust. Capital expenditures for the year totaled RMB 6.1 billion. Now moving on to our business outlook. Based on current market conditions, we anticipated our parcel volume for 2026 to grow in the range of 10% to 13% year-over-year. This growth rate implies an annual parcel volume between RMB 42.37 billion and RMB 43.52 billion. We are committed to growing our volume faster than the industry average for the year. Now on to our shareholder returns. The Board has approved a semi-annual cash dividend of USD 0.39 per ASD in accordance with the established 40% payout ratio. In addition, having substantially completed our previous USD 2 billion program, and the Board has authorized a new 24-month $1.5 billion share buyback program effective through March 2028. Finally, we are pleased to announce an enhanced shareholder return program, starting from 2026 company targets and aggregate annual return ratio of no less than 50% of our adjusted net income for the previous fiscal year, comprising both cash dividends and share buyback. This enhancement reflects our commitment to optimize capital allocation and delivering consistent long-term value to our shareholders. This concludes our prepared remarks. Operator, please open the line for questions.
Operator: [Operator Instructions] And today's first question comes from Qianlei Fan with Morgan Stanley.
Qianlei Fan: [Foreign Language] Let me translate for myself. I have 2 questions. The first question is about anti-involution. After the Chinese New Year, we have seen lots of news, the anti-involution dynamics everywhere in China. So is there any new updates on the anti-involution initiatives? How do you expect the sustainability of such anti-involution driven price hikes? What's your take on the attitude from the regulatory towards anti-involution? And what's your expectation on the potential pricing trends for the rest of the year? The second question is about industry growth outlook and competition landscape. So taking into consideration of potential price hikes and the anti-involution, what's your expectation on the full year industry growth outlook? And with this outlook, what's your expectation on the industry competition landscape and market share dynamics?
Meisong Lai: [Foreign Language]
Huiping Yan: [Interpreted] Thank you very much for your question. I'll translate for the Chairman here. Since the introduction of the anti-involution policy in the third quarter last year, the industry's competitive landscape has steadily improved. The parcel prices have recovered and the focus has turned towards safeguarding the interest of frontline people such as the outlet and couriers. Following the spring festival, the policy has remained in effect. And with its continued enforcement, the industry is well positioned to sustain quarterly competition above the cost line. As one of the key players in the industry, we're are not only participants but also must take on the leadership role. ZTO's strategy is well aligned with government's effort to combat involution, seeking a balanced development that prioritizes service quality, effectively protect the rights and interest of outlets and couriers and promote a healthy, orderly competitive environment for the industry. Now for the second question, first, the sector's growth. The scale or the parcel volume of China's express delivery industry has approached 200 billion 2025, which established a significantly large base. And with the implementation of the anti-involution policy, express delivery prices have steadily recovered and low-priced parcel volumes have gradually decreased. It is reasonable to expect a gradual deceleration of the industry growth. And the sector is likely to transit from a volume-driven model to a new phase focused on high-quality development. Note that the Postal Bureau has estimated a 8% growth for 2026 and ZTO has given a guidance of growth between 10% to 13%, which certainly implies the development faster than the industry average. On the competitive landscape, as the macroeconomic condition continues to improve and express delivery industry move towards higher quality development, market demand will naturally gravitate towards and become increasingly concentrated among companies that prioritize service and operational efficiencies. Leading enterprises, leveraging their superior service capabilities and well-established infrastructure networks are better positioned to further consolidate the market, driven by policy guidance and reinforced by industry self-regulation. The trend of bifurcation is expected to further fostering a healthier and more orderly competitive landscape. I hope that answers your question.
Operator: And our next question today comes from [ Stephen Xu ] with Goldman Sachs.
Unknown Analyst: [Foreign Language] I have 2 questions. My first question is under the anti-involution scheme, what is the 2026 priority for your company? Is it market share profit or network governance? And also, does the RMB 200 million fund that you dedicated to support your frontline employee as well as your network signal more support for your partners. My second question is, given the January to February GMV growth industry-wide has that been faster than the volume growth and which has been the first time since 2023. So is this mix driven or structural? And could the competition shifts to quality or just only the improvement?
Meisong Lai: [Foreign Language]
Huiping Yan: [Interpreted] ZTO remained steadfast in our fundamental approach of integrating service quality, market share and a reasonable level of profit, which serves as our core strategy revolved and our resolve to navigate cycles and seize long-term opportunities. Entering 2026, supported by stable macroeconomic fundamentals, the industry-wide consensus against involution continues to solidify. ZTO will respond to the national call by taking the lead in maintaining a steady and rational industry competitive order, driving an accelerated transition of our operational focus from scale expansion towards a value proposition centered on both quality and quantity. We clearly recognize that the restoration and stability of our franchise networks ecosystem in terms of their trust and hope are the cornerstone of high-quality development around -- across the entire network with a strategic significance that far awaits short-term financial gain. Therefore, our current strategic focus is on continuously optimizing the fairness and transparency of our network policies to effectively safeguard the reasonable and rightfully so the level of income of our grassroot partners and frontline couriers. The recent launch of RMB 200 million special service incentive fund is indeed intended specifically for the fact that we are putting quality as the priority. This is a concrete demonstration of our shared success philosophy and our pragmatic actions to provide targeted support to higher quality outlets while empowering frontline employees. This initiative aims to stimulate the networks intrinsic motivation by optimizing profit-sharing mechanism, reinforcing our brand advantage while building a win-win ecosystem for the entire network. The RMB 200 million is going to be allocated and distributed across the whole end-to-end operations from pickup to delivery. The goal is to very specifically further expand our recognition of shared success as well as our effective approach to allocate interest among all the stakeholders, including the small micro operators of our business, which are the key foundation of our long-term success. Now your second question, the turnaround in average order value in early 2026 confirms that the industry is undergoing a transformation from lower price volume tracing to value restoration. This shift is fundamentally driven by the stabilization of macro fundamentals and the deepening consensus against involution, which has accelerated the exit of loss-making low-price volume. We firmly believe that irrational price competition creates no incremental value for either e-commerce platforms or express delivery operators. Current market dynamics represent a structural upgrade in competition moving from price-driven to quality driven. This evolution provides a solid foundation for sustainable price improvements across the whole industry. ZTO remains committed to our tripart strategy and our focus on high-quality customer services has yield clear results. In 2025, our retail parcel volume surged 46% year-over-year with daily volume approaching 10 million in Q4. Looking ahead, we will continue to leverage our leading cost advantage and superior services to lead the industry through this quantity to quality cycle increase long-term value.
Operator: And our next question comes from Aaron Luo with UBS.
Aaron Luo: [Foreign Language] So let me translate myself. And I have 2 questions. One is about our recent issuance of convertible bonds in early February. So just would like to understand a bit more of our major considerations behind our recent issuance and more importantly, at what pace should we expect for the share buybacks to proceed? The second question is about AI, which has been continued to be a very hot topic among investors. So just curious about what are the major applications of AI and even large models at our company?
Huiping Yan: Can I just go straight to English? The convertible bond in February 2026, the company issued $1.5 billion 5-year convertible bonds. We launched it during a window where we can take advantage of our low-cost financing tool during a period where the company's market value was underassessed. The proceeds with a net amount of about USD 1.4 billion is intended solely for company's share buyback. And this issuance is intended to effectively enhance earnings per share, which we did. And hence, improve our shareholder value and protect interest and optimize our company's capital structure. The pace of buyback is that the repurchase program is processing very efficiently. We have completed our previous -- we have completed the $600 million in total. It's approximately $600 million in total share buyback on the issuance day as well as during the subsequent trading window. For the remaining $800 million, we plan to complete the repurchase over the next year in line with market -- taking consideration with the market price fluctuations, so at a reasonable price range, we will put in programs to consistently doing the buyback in order to strengthen our shareholder returns. And the new shareholder return plan, you didn't ask that question, but I think I'll just take this opportunity to provide some insights. We established a consistent and integrated shareholder return system. And this is going to be a combined dividend and buyback mechanism, which is out of the total, no less than 50% of the adjusted net profit from prior year. Now your question on the AI -- on the second question.
Meisong Lai: [Foreign Language]
Huiping Yan: [Interpreted] Let me help translate. ZTO has steadfastly advance its digital transformation in recent years as well as driving further and deeper integration of AI technology across the entire express delivery chain to achieve a fundamental change from experience-driven to data-driven operations. First, our focus on AI empowerment across the entire chain is on reducing cost and increasing efficiency. The refined management at the sorting end, we are promoting the application of 3D digital twins and computer vision technologies, which have now been implemented in 25 of our super sorting centers. This system enables remote monitoring and automatic anomaly alerts, helping sorting centers and outlets reduce missorting rates by over 50% -- by 60%. While improving operational precision, it has also significantly lowered labor cost. On the customer service side, the intelligent service center is leveraging the AI-powered customer service system so that they are able to automatically handle over 70% of end-to-end work orders and enable merchants to deliver -- to directly connect with last-mile couriers that are in-progress or after sales support. Meanwhile, intelligent assistant such as [ Ask Xiaotong ] and Tracking Assistant covers over 80% of 	routine businesses inquiries at the outlet level, significantly reduced customer service costs at the outlet level as well as headquarters. On the last mile, dispatching side, it becomes more precise now with the AI technology implementation. We are able to leverage our in-house high-precision mapping data. We are able to have a deeply applied scenario such as outlet site selection and delivery route planning, which is time dynamic. This has not only empowered large-scale outlets to reduce short-haul transportation cost by over 20%, but also enabled precise order allocation and intelligent dispatch for tens of millions of orders per day during peak retail parcel collection period. On the second part, we not only -- on the second part about the large modeling, we are driving the evolution from execution tools to have it become more of a business partner for an AI agent scenario. In the past, AI is primarily -- was primarily focused on replacing repetitive labor, but large models are now transforming our business operation structures and cycles. Currently, we are focusing on 2 key areas: one, deep business analysis at both the headquarters and regional level, we leverage AI-driven inquiries for data mining. This tool not only generates reports as needed, but also uncovers hidden patterns within the complex customer quality and cost data that management can have previously overlooked effectively so that we can embed technology into the heart of our lean management system and also for problem identification and problem solving. Second, high precision business forecasting. We are introducing a general-purpose time-sensitive forecasting, modeled to upgrade our existing forecast system. This model can learn from vast patterns across industries based on our huge database historically as well as ongoing and quickly adapt to new scenarios, enabling more gradual and timely parcel volume forecast and providing robust data support for our operations, including the capacity planning, the route planning so that we are able to maximize intelligence to drive operational efficiencies. That is the answer to your second question.
Operator: Thank you. That concludes our question-and-answer session. I'd like to turn the conference back over to the company for closing remarks.
Huiping Yan: Thank you, everyone, again for joining us. As the Chairman had pointed out that the industry is entering into a stable growth stage and we are committed to grow our volume faster than the industry average. And our tripart strategy and corporate directives are intact, and we are focused on building our infrastructure capability or enhancing our ability with technology as well as helping ensure the fairness of our network policy to further enhance the trust and fairness across our network so that we have a sustainable long-term business, creating value for our stakeholders, including shareholders. This concludes our meeting today. Thank you again. We look forward to talking with you offline. Thank you.
Operator: Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]