Investment Rating - The report assigns a "Buy" rating to ZTO Express, with a target market value of 173.8 billion HKD based on a 15x P/E ratio for the projected net profit of 10.526 billion CNY in 2024 [8][17]. Core Insights - ZTO Express has emerged as a leading player in the e-commerce express delivery sector, achieving significant market share and profitability through strategic innovations and operational efficiencies [3][18]. - The express delivery industry continues to exhibit growth potential, driven by increasing online shopping penetration and evolving consumer behaviors, despite a downward trend in the average value of packages [4][33]. - ZTO's operational transformation focuses on direct management, large-scale operations, and automation, which have significantly reduced costs and improved efficiency [5][24]. Summary by Sections Company Overview - ZTO Express was established in 2002 and has rapidly ascended to become a market leader in the e-commerce express delivery sector through various strategic initiatives [3][18]. - The company went public in the US in 2016 and in Hong Kong in 2020, enhancing its capital base and operational capabilities [19][20]. Industry Growth Potential - The e-commerce express delivery market is expected to grow, with the online retail sales of physical goods reaching 13.02 trillion CNY in 2023, a year-on-year increase of 8.4% [33]. - The penetration of online shopping is increasing, with the proportion of online retail sales in total social retail sales rising to 27.6% in 2023 [33]. Operational Efficiency - ZTO has achieved a 100% direct management rate for its trunk line vehicles since 2021, leading to a significant reduction in transportation costs from 0.83 CNY per item in 2016 to 0.45 CNY in 2023 [5][24]. - The company has also automated its sorting centers, increasing the number of automated sorting devices from 58 in 2017 to 464 in 2023, which has further reduced sorting costs [5][24]. Financial Performance - ZTO's net profit for 2024 is projected to be 10.526 billion CNY, with a compound annual growth rate of 16.0% from 2023 to 2026 [8][11]. - The company maintains a strong cash position, with a cash dividend of 0.62 USD per share in 2023 and a commitment to a dividend payout ratio of no less than 40% in 2024 [26][27].

Investment Rating - The investment rating for ZTO Express is "Buy" [4] Core Views - ZTO Express has emerged as a leader in the e-commerce express delivery sector, achieving significant market share and profitability through strategic innovations and operational efficiencies [7][16] - The express delivery industry still has growth potential, driven by increasing online shopping penetration and the rise of live e-commerce, which is expected to enhance overall business volume [8][35] - ZTO Express's asset transformation initiatives, including direct operation, large-scale vehicles, and automation, have significantly reduced operational costs and improved efficiency [9][25] Summary by Sections Company Overview - ZTO Express was established in 2002 and has rapidly ascended to become a leading player in the e-commerce express delivery market through various strategic initiatives [7][17] - The company focuses primarily on domestic e-commerce express services while gradually expanding its logistics ecosystem [22] Industry Growth Potential - The express delivery sector continues to grow, with e-commerce package volume expected to increase due to higher online shopping penetration and the fragmentation of consumer purchasing behavior [8][35] - The competitive landscape is anticipated to stabilize, reducing price competition among major players [8] Asset Transformation - ZTO Express has fully integrated its transportation operations, achieving 100% direct operation of its trunk vehicles since 2021, which has led to a significant reduction in transportation costs from 0.83 yuan per ticket in 2016 to 0.45 yuan in 2023 [9][25] - The company has also automated its sorting centers, increasing the number of automated sorting devices from 58 in 2017 to 464 in 2023, resulting in lower sorting costs [9][25] Management Strategy - ZTO Express has implemented a shared governance model that aligns the interests of headquarters, franchisees, and couriers through equity swaps and incentive programs [10][11] - The company has established an employee stock ownership plan to incentivize staff and enhance long-term commitment [11] Profit Forecast and Valuation - The projected net profit for ZTO Express for 2024 is 10.526 billion yuan, with a compound annual growth rate of 16% from 2023 to 2026 [12][16] - The target market capitalization is set at 173.8 billion HKD, based on a 15x price-to-earnings ratio for the expected net profit in 2024 [12][16]

Core Insights - Inceptio Technology has achieved a significant milestone by surpassing 100 million kilometers in safe commercial operations of its autonomous heavy-duty trucks, reinforcing its leadership in the commercialization of autonomous trucks [1][2] - The company's autonomous driving system has been successfully deployed across various sectors of line-haul logistics, including express delivery and contract logistics, demonstrating the value it offers to logistics operators [1][5] Group 1: Commercialization and Adoption - Inceptio-powered trucks reached 50 million kilometers of safe commercial operations in August 2023 and quickly surpassed 100 million kilometers by April 2024 [2] - The autonomous driving system covers 83% of China's national highways, connecting seven major economic zones, indicating extensive operational reach [2] - A total of 1,864 drivers have safely operated Inceptio-powered L3 and L2+ trucks during the 100 million kilometers [2] Group 2: Customer Base and Partnerships - Current customers include leading logistics companies in China such as ZTO Express, YTO Express, and JD Logistics, showcasing a strong market presence [3] - Inceptio has partnered with major truck manufacturers like Dongfeng and Sinotruk to pre-load trucks with its autonomous driving system, expanding its operational fleet [4] Group 3: Operational Efficiency and Cost Savings - The use of Inceptio's autonomous trucks has allowed express delivery companies to reduce the number of drivers per truck from two to one on routes of 500 to 1,200 kilometers, resulting in a 40% to 50% reduction in labor costs [6] - Contract logistics companies have reported a decrease in driver-to-truck ratios and a reduction in fuel consumption by 3-5 liters per 100 kilometers, leading to a 7-15% decrease in total cost of ownership per kilometer [7] - Individual operators have experienced increases of 10-20% in monthly kilometers per truck and additional monthly net income due to improved safety and driving comfort [8] Group 4: Technological Advancements - Inceptio leverages a data-driven R&D system to enhance its autonomous driving technology, focusing on real-world data to refine its T-NOA algorithm [9] - The company's CEO highlighted the rapid progress in commercialization and the profound impact of its technology on the logistics industry, emphasizing a user-driven approach to innovation [10] Group 5: Company Overview - Inceptio Technology is a leading developer of autonomous driving technologies for heavy-duty trucks, having launched the first mass-produced L3 autonomous trucks in China in late 2021 [11] - The company aims to develop fully driverless trucks and was the first in China to receive a public road-testing permit for such vehicles [11]

Investment Rating - The report maintains a "Buy" rating for ZTO Express (2057.HK) [1] Core Views - ZTO Express has established a strong competitive position through three key decisions: the launch of inter-provincial express services, the implementation of a paid delivery fee system, and the reform to a shareholding structure, which have collectively contributed to its market leadership and long-term sustainability [3][4][5] - The "co-construction and sharing" philosophy is identified as a core competitive advantage, promoting cost reduction across the entire logistics chain and facilitating product stratification, which is expected to enhance performance and profitability [4][5] Historical Review - ZTO Express was founded in 2002 and became the first private express company to launch inter-provincial services in 2005, significantly expanding its network coverage [3][19] - The company adopted a paid delivery fee model in 2009, which improved network stability and service quality, leading to a substantial increase in business volume [3][21] - The shareholding reform initiated in 2014 allowed for centralized management and aligned the interests of network partners, further solidifying ZTO's competitive edge [3][24] Future Outlook - The "co-construction and sharing" strategy is expected to drive down costs across the logistics chain, particularly at the last-mile delivery stage, which accounts for a significant portion of overall costs [4][53] - ZTO Express aims to penetrate the mid-to-high-end market segments, optimizing its business structure and enhancing profitability through product stratification [4][5] - The company is projected to achieve revenue of 429.76 billion, 484.31 billion, and 545.56 billion yuan for the years 2024 to 2026, with corresponding net profits of 100.77 billion, 118.07 billion, and 144.89 billion yuan [5]

Core Viewpoint - ZTO Express (Cayman) Inc. is set to release its unaudited financial results for Q1 2024 on May 15, 2024, after U.S. market closes, indicating the company's ongoing commitment to transparency and investor communication [1]. Company Overview - ZTO Express is a leading and fast-growing express delivery company in China, providing express delivery and value-added logistics services through a reliable nationwide network [4]. - The company operates a scalable network partner model, which supports the growth of e-commerce in China by leveraging partners for pickup and last-mile delivery while controlling critical line-haul transportation and sorting [4]. Earnings Conference Call - The management team will host an earnings conference call on May 15, 2024, at 8:30 P.M. U.S. Eastern Time, which corresponds to 8:30 A.M. Beijing Time on May 16, 2024 [1]. - Dial-in details for the conference call are provided for various regions, including the U.S., Hong Kong, Singapore, and Mainland China [2]. - A replay of the conference call will be available until May 22, 2024, with specific numbers for access [3].

Operational Performance - In 2023, ZTO Express handled 30.2 billion parcels, representing a year-on-year growth of 23.8%[26] - The company's market share reached 22.9%, maintaining its position as the industry leader for eight consecutive years[26] - ZTO Express operated more than 31,000 outlets and 99 domestic sorting hubs by the end of 2023[26] - The company has approximately 6,000 direct network partners and over 10,000 line-haul vehicles, including about 9,200 high-capacity trailer trucks[26] Technological Innovation - ZTO Express aims to enhance user experience through the introduction of advanced technologies such as artificial intelligence and big data analysis[22] - The "Express Butler System" has been upgraded to provide intelligent AI group chat after-sales service for small and medium-sized vendors, improving service efficiency[102] - ZTO Express aims to enhance operational efficiency through technological innovations, integrating digital technology into the entire express delivery business[92] Environmental Sustainability - The company is committed to reducing its carbon footprint and building a sustainable logistics system[21] - ZTO Express has implemented a top-down ESG governance structure, with the Board of Directors holding ultimate responsibility for ESG initiatives[34] - The company aims to achieve long-term sustainable development through continuous improvement of its ESG governance system[33] - In 2023, ZTO Express recycled 150 million cartons, demonstrating a commitment to waste management and sustainability[57] - The company achieved a 34% year-on-year growth in photovoltaic power generation, reflecting its investment in clean energy[57] - ZTO Express implemented green packaging initiatives, including fully biodegradable bags and recycled express boxes, with an average of 360,000 boxes recycled 8 times[57] - The company aims to achieve carbon neutrality and has integrated climate change into its corporate governance and strategic framework[58] - ZTO Express has 464 sets of automated sorting equipment, enhancing efficiency while reducing energy consumption and pollution[57] - The company utilizes LNG-powered vehicles in some areas to promote eco-friendly transportation solutions[57] - ZTO Express's new energy vehicles are part of its strategy to reduce greenhouse gas emissions and improve energy efficiency[57] - The company has established policies for emergency response to mitigate the impact of climate-related physical risks on operations[58] - ZTO Express's Board of Directors oversees climate change-related risks and opportunities, linking board compensation to climate performance[59] - ZTO Express aims for a 20% reduction in GHG emissions intensity per parcel by 2028[75] - In 2023, ZTO Express's total energy consumption was 732,619.73 tons of standard coal equivalent, with direct energy consumption at 648,856.31 tons[78] - The company generated 40,150 megawatt-hours of renewable energy, a 34% increase from the previous year, with 26,010 megawatt-hours used for self-consumption[78] - The proportion of e-commerce parcels without secondary packaging reached 93.34%, and standardized packaging materials usage was 91.83%[82] - ZTO Express's direct greenhouse gas emissions (Scope 1) totaled 1,402,275 metric tons CO2e, while indirect emissions (Scope 2) were 388,692 metric tons CO2e[78] - The company installed approximately 370,000 square meters of photovoltaic panels, generating 40,150 megawatt-hours of electricity[78] - ZTO Express has committed to enhancing resource efficiency and reducing waste through sustainable practices and circular economy concepts[70] - The company has developed a dedicated network for the distribution and recycling of environmentally friendly bags, improving operational efficiency[85] - ZTO Express is actively exploring voluntary emission reduction projects in the express delivery industry[74] Employee Rights and Development - ZTO Express has strengthened employee rights protection and enhanced vocational skills training[23] - By the end of the reporting period, the coverage rate of collective agreements for employee rights was 100%, with no incidents of human rights violations reported[180] - The company is committed to creating a diverse and inclusive workplace, enhancing employee satisfaction and promoting a people-oriented management philosophy[176] - The total number of employees decreased from 24,888 in 2022 to 23,554 in 2023, with 6,120 new employees hired in 2023[182] - The overall employee turnover rate for 2023 was 24.32%, with a voluntary turnover rate of 24.21%[182] - The annual turnover rate for operational staff decreased by 3.59% to 55.06% in 2023, compared to 58.65% in 2022, achieving the target reduction of 3%[183] - Female employees accounted for 36.01% of the total workforce, with female managers making up 31.00%[188] - The company achieved a 100% contribution rate for employee social insurance and housing provident fund during the reporting period[184] - ZTO Express recruited over 1,000 local workers from economically disadvantaged areas in 2023 to address local employment issues[186] - The number of accountable accidents decreased by 8.1% in 2023 compared to 2022, indicating improved safety management practices[195] - The proportion of unclear monthly turnover reasons decreased from 89.4% to below 20% during 2023, enhancing employee retention strategies[183] - The company implemented targeted recruitment for disabled individuals and ethnic minorities to foster a diverse workforce[185] - The average cost of employment per person in 2023 was RMB 289.69[182] Customer Satisfaction and Service Quality - ZTO Express achieved a customer satisfaction rate of 94% in 2023, up from 91% in 2022[135] - The all-channel connection rate of ZTO Express was 96.07% in 2023, an increase of 2.56% compared to 2022[133] - The complaints per 10,000 orders decreased to 1.99 in 2023, down by 2.45% from 2022[133] - A total of 178 customer service training sessions were conducted, with 3,510 trainees participating[136] - The utilization rate of privacy waybills in the entire network reached 76% in 2023[144] - ZTO Express maintained 100% coverage of privacy policies, ensuring all customers were informed[154] - The company experienced zero information security breaches in 2023, with no customers affected[154] - The company conducted an internal audit of its information security management system annually, ensuring compliance with ISO certifications[152] - ZTO Express has developed the "Blue Bee Index" project, achieving a 56.20% success rate in compliance rectification among over 2,700 couriers nationwide[159] - The overall learning completion rate for courier training modules exceeded 92% by the end of 2023, focusing on safety and operational skills[160] Strategic Partnerships and Expansion - ZTO Express signed a strategic cooperation agreement with NEOLIX to promote the large-scale application of autonomous driving vehicles, with initial operations commencing in cities like Yancheng and Hefei[173] - The company actively collaborates with Nanjing University of Aeronautics and Astronautics to advance drone logistics, focusing on core technologies and scientific project applications[174] - ZTO Express is actively pursuing global expansion, leveraging the "Belt and Road" initiative to build an international logistics network[113] Financial Performance and Cost Management - The company has reduced logistics costs by approximately 10% for customers through enhanced flexibility and responsiveness in the spare parts logistics supply chain[110] - ZTO Express continues to expand its product matrix and launched several high value-added products during the reporting period[106] - The company has developed a one-stop production and research work platform to improve R&D efficiency and collaboration[93] - The percentage of customers using online services/platforms increased from 92% in 2021 to 95% in 2023[132] - The percentage of total revenue generated from online channels rose from 90.3% in 2021 to 92.4% in 2023[132]

FORM 20-F Filing Information [General Filing Details](index=1&type=section&id=FORM%2020-F) This document is an Annual Report on Form 20-F for the fiscal year ended December 31, 2023, filed by ZTO Express (Cayman) Inc - The filing is an Annual Report on Form 20-F for the fiscal year ended **December 31, 2023**[2](index=2&type=chunk) - ZTO Express (Cayman) Inc. is registered with commission file number **001-37922**[3](index=3&type=chunk) - The company's principal executive offices are located in Qingpu District, Shanghai, People's Republic of China[3](index=3&type=chunk) [Securities Registration and Issuer Status](index=1&type=section&id=Securities%20registered%20or%20to%20be%20registered%20pursuant%20to%20Section%2012(b)%20of%20the%20Act) The company has securities registered on the NYSE and HKEX and is classified as a well-known seasoned issuer and large accelerated filer Securities Registered Pursuant to Section 12(b) of the Act | Title of each class | Trading Symbol(s) | Name of Each Exchange on Which Registered | |:---|:---|:---| | American depositary shares, each representing one Class A ordinary share par value US$0.0001 per share | ZTO | New York Stock Exchange | | Class A ordinary shares, par value US$0.0001 per share | 2057 | The Stock Exchange of Hong Kong Limited | - As of December 31, 2023, there were **812,866,663 ordinary shares outstanding**, comprising 606,766,663 Class A ordinary shares and 206,100,000 Class B ordinary shares[5](index=5&type=chunk) - The registrant is a **well-known seasoned issuer** and a **large accelerated filer**, and has filed all required reports under the Securities Exchange Act of 1934[5](index=5&type=chunk) Introduction [Company Structure and Operational Overview](index=4&type=section&id=INTRODUCTION) ZTO is a Cayman holding company operating in China via subsidiaries and a VIE due to PRC foreign investment restrictions - ZTO Express (Cayman) Inc. is a Cayman Islands holding company, not a Chinese operating company[8](index=8&type=chunk) - Operations in China are conducted through subsidiaries and contractual arrangements with ZTO Express Co., Ltd. (VIE) due to PRC foreign investment restrictions in domestic mail delivery services[8](index=8&type=chunk) ZTO Express Revenue Contribution to Total Revenues | Fiscal Year | Revenue Contribution (%) | |:---|:---| | 2021 | 97.7 | | 2022 | 90.4 | | 2023 | 81.4 | [Risks Associated with Corporate Structure and PRC Operations](index=4&type=section&id=Risks%20Associated%20with%20Corporate%20Structure%20and%20PRC%20Operations) The company's VIE structure faces significant legal and operational risks from evolving PRC laws and potential government actions - The contractual arrangement with ZTO Express is subject to risks due to uncertainties in the PRC legal system and potential changes in regulations, which could limit enforceability[9](index=9&type=chunk) - If PRC government finds the VIE structure non-compliant, ZTO could face **severe penalties**, be forced to relinquish interests, or ZTO Express could be deconsolidated, materially affecting operations and share value[9](index=9&type=chunk) - The company faces legal and operational risks from complex and evolving PRC laws, including those on foreign investment, VIEs, anti-monopoly, cybersecurity, and data privacy, which may impact business, foreign investments, or listing status[9](index=9&type=chunk) [Cash Transfers and Dividend Distribution](index=5&type=section&id=Cash%20Transfers%20and%20Dividend%20Distribution) Cash is transferred to PRC subsidiaries via loans or contributions, while dividends depend on PRC distributions and are subject to legal restrictions - ZTO transfers cash to Hong Kong subsidiaries (via BVI) through capital contributions or loans, and Hong Kong subsidiaries transfer to PRC subsidiaries similarly[10](index=10&type=chunk) - Direct capital contributions to ZTO Express are not possible; cash is transferred via loans or payments for inter-group transactions[10](index=10&type=chunk) Dividends Paid by ZTO to Shareholders | Year Ended December 31 | Dividends Paid (US$ millions) | |:---|:---| | 2021 | 208.4 | | 2022 | 202.3 | | 2023 | 299.3 | [Definitions](index=5&type=section&id=Definitions) This section defines key terms used in the report, including ADSs, PRC, VIE, network partners, and financial metrics - Key terms defined include 'ADSs' (American depositary shares), 'China' or 'PRC' (People's Republic of China excluding Hong Kong, Macau, Taiwan), and 'VIE' (ZTO Express Co., Ltd., whose financial results are consolidated under U.S. GAAP)[11](index=11&type=chunk)[13](index=13&type=chunk) - Operational terms such as 'delivery service fees' (fees collected by pickup outlets), 'network partners' (business partners operating outlets), 'network transit fees' (fees payable to ZTO by partners), and 'parcel volume' (number of parcels collected) are clarified[11](index=11&type=chunk) - 'Unit cost per parcel' is defined as the sum of cost of revenues and total operating expenses divided by total parcel volume[11](index=11&type=chunk) Forward-Looking Statements [Disclaimer and Scope](index=7&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section contains forward-looking statements involving risks and uncertainties, made under the 'safe harbor' provisions of U.S. law - The report contains forward-looking statements under the 'safe harbor' provisions of the **U.S. Private Securities Litigation Reform Act of 1995**[15](index=15&type=chunk) - These statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially[15](index=15&type=chunk) - Forward-looking statements relate to goals, strategies, future business development, financial conditions, industry growth, market acceptance, relationships with stakeholders, competition, and government policies[16](index=16&type=chunk) Part I [Explanatory Note](index=8&type=section&id=EXPLANATORY%20NOTE) This note details ZTO's Cayman holding company structure, its reliance on a VIE in China, and the associated risks and cash flow mechanisms - ZTO is a Cayman Islands holding company with no equity ownership in ZTO Express, its consolidated affiliated entity, conducting operations through PRC subsidiaries and ZTO Express via contractual arrangements[20](index=20&type=chunk)[22](index=22&type=chunk) - Revenues contributed by ZTO Express accounted for **97.7%**, **90.4%**, and **81.4%** of total revenues for fiscal years 2021, 2022, and 2023, respectively[22](index=22&type=chunk) - The company faces significant risks from potential PRC government actions regarding the VIE structure, regulatory oversight, and evolving legal systems, which could materially affect operations and share value[20](index=20&type=chunk)[21](index=21&type=chunk)[29](index=29&type=chunk) [Our Holding Company Structure and Contractual Arrangements](index=8&type=section&id=Our%20Holding%20Company%20Structure%20and%20Contractual%20Arrangements) ZTO uses contractual arrangements to control its VIE, ZTO Express, to comply with PRC foreign investment restrictions in domestic mail delivery - ZTO operates domestic mail delivery services through ZTO Express (VIE) to comply with PRC laws restricting foreign control[22](index=22&type=chunk) - Key contractual arrangements include voting rights proxy, equity pledge, exclusive call option, and exclusive consulting and services agreements, allowing ZTO to direct VIE activities and consolidate financials[27](index=27&type=chunk) - The exclusive consulting and services agreement mandates ZTO Express to pay Shanghai Zhongtongji Network (ZTO's PRC subsidiary) an annual service fee equal to **100% of its net income**[27](index=27&type=chunk) [Permissions Required from the PRC Authorities for Our Operations](index=11&type=section&id=Permissions%20Required%20from%20the%20PRC%20Authorities%20for%20Our%20Operations) ZTO's PRC entities hold material operating licenses, but legal uncertainties may require additional future approvals - PRC subsidiaries, ZTO Express, and its subsidiaries have obtained material requisite licenses and permits, including **Courier Service Operation Permit** and **Road Transportation Operation Permit**[30](index=30&type=chunk) - Uncertainties in interpretation and implementation of PRC laws may necessitate additional licenses or approvals in the future[30](index=30&type=chunk) [Permissions Required from the PRC Authorities for Overseas Financing Activities](index=11&type=section&id=Permissions%20Required%20from%20the%20PRC%20Authorities%20for%20Overseas%20Financing%20Activities) New CSRC regulations require PRC domestic companies like ZTO to complete filing procedures for overseas securities offerings and listings - CSRC's Trial Administrative Measures (effective March 31, 2023) require PRC domestic companies to file with CSRC for overseas securities offerings and listings, including follow-on offerings[31](index=31&type=chunk) - Existing overseas-listed issuers like ZTO are not required to make immediate filings but must comply for future offerings and material corporate events[31](index=31&type=chunk) - Non-compliance with these measures could result in CSRC sanctions, fines, operational limitations, restrictions on dividend payments, and adverse effects on business and share price[31](index=31&type=chunk) [The Holding Foreign Companies Accountable Act (HFCAA)](index=12&type=section&id=The%20Holding%20Foreign%20Companies%20Accountable%20Act) The HFCAA poses delisting risks if auditors are not inspected by the PCAOB, though the immediate threat was removed in December 2022 - The HFCAA mandates delisting if the SEC determines audit reports are from firms not inspected by the PCAOB for **two consecutive years**[32](index=32&type=chunk) - ZTO was listed as a Commission-Identified Issuer in May 2022, but the PCAOB vacated its non-inspection determination for mainland China and Hong Kong in December 2022[33](index=33&type=chunk) - Future PCAOB determinations of non-inspection could lead to ZTO being identified as a Commission-Identified Issuer again, potentially resulting in trading prohibition and adverse effects on investment value[34](index=34&type=chunk) [Cash Transfers and Dividend Distribution](index=12&type=section&id=Cash%20Transfers%20and%20Dividend%20Distribution) Cash is transferred to PRC entities via loans or contributions, while future dividends depend on PRC subsidiary earnings and are subject to restrictions - ZTO transfers cash to Hong Kong subsidiaries (via BVI) through capital contributions or loans, and Hong Kong subsidiaries transfer to PRC subsidiaries similarly[35](index=35&type=chunk) - Cash transfers to ZTO Express (VIE) are made via loans or payments for inter-group transactions, not direct capital contributions[35](index=35&type=chunk) Cash Transfers (RMB in millions) | Category | 2021 | 2022 | 2023 | |:---|:---|:---|:---| | Capital contributions and loans from Parent to Cayman, BVI, and Hong Kong subsidiaries, and collection of loans from Cayman, BVI, and Hong Kong subsidiaries to Parent | 1,250 | 2,580 | (1,561) | | Capital contributions from Hong Kong subsidiaries to PRC subsidiaries | 3,671 | 2,282 | 840 | | Amounts received by subsidiaries of Parent from ZTO Express | 15,974 | 20,739 | 17,986 | - For 2021, 2022, and 2023, no shareholder loans were provided by ZTO to PRC subsidiaries, and no dividends were made to ZTO by its subsidiaries; ZTO paid dividends of **US$208.4 million**, **US$202.3 million**, and **US$299.3 million** to its shareholders[38](index=38&type=chunk) - PRC subsidiaries are required to set aside at least **10% of after-tax profits** to statutory reserve funds until **50% of registered capital** is reached; these funds are not distributable as cash dividends[39](index=39&type=chunk) [Item 3. Key Information](index=14&type=section&id=Item%203.%20KEY%20INFORMATION) This section provides key financial data and outlines significant risk factors related to the company's business, VIE structure, and PRC operations - The section presents summary consolidated financial data for 2021, 2022, and 2023, prepared in accordance with U.S. GAAP[42](index=42&type=chunk) - Key risk categories include those related to business and industry (e.g., e-commerce dependency, competition, service disruptions), corporate structure (VIE enforceability), doing business in China (regulatory oversight, legal system uncertainties, PCAOB inspections), and shares/ADSs (volatility, dual-class structure, short-seller attacks)[60](index=60&type=chunk)[61](index=61&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) [A. Our Selected Consolidated Financial Data](index=14&type=section&id=A.%20Our%20Selected%20Consolidated%20Financial%20Data) This section presents ZTO's selected consolidated financial data for fiscal years 2021-2023, prepared under U.S. GAAP Selected Consolidated Comprehensive Income Data (RMB in thousands) | Indicator | 2021 | 2022 | 2023 | 2023 (US$) | |:---|:---|:---|:---|:---| | Revenues | 30,405,839 | 35,376,996 | 38,418,915 | 5,411,191 | | Cost of revenues | (23,816,462) | (26,337,721) | (26,756,389) | (3,768,559) | | Gross profit | 6,589,377 | 9,039,275 | 11,662,526 | 1,642,632 | | Income from operations | 5,503,011 | 7,736,481 | 10,007,924 | 1,409,586 | | Net Income | 4,701,327 | 6,658,966 | 8,754,457 | 1,233,040 | | Net income attributable to ZTO Express (Cayman) Inc. | 4,754,827 | 6,809,056 | 8,749,004 | 1,232,272 | | Basic EPS (RMB) | 5.80 | 8.41 | 10.83 | 1.53 | | Diluted EPS (RMB) | 5.80 | 8.36 | 10.60 | 1.49 | Selected Consolidated Balance Sheet Data (RMB in thousands) | Indicator | 2021 | 2022 | 2023 | 2023 (US$) | |:---|:---|:---|:---|:---| | Cash and cash equivalents | 9,721,225 | 11,692,773 | 12,333,884 | 1,737,191 | | Short-term investment | 2,845,319 | 5,753,483 | 7,454,633 | 1,049,963 | | Property and equipment, net | 24,929,897 | 28,813,204 | 32,181,025 | 4,532,603 | | Total assets | 62,772,343 | 78,523,586 | 88,465,221 | 12,460,066 | | Short-term bank borrowings | 3,458,717 | 5,394,423 | 7,765,990 | 1,093,817 | | Total liabilities | 13,844,762 | 24,051,116 | 28,184,813 | 3,969,748 | | Total Equity | 48,927,581 | 54,472,470 | 60,280,408 | 8,490,318 | Selected Consolidated Cash Flow Data (RMB in thousands) | Indicator | 2021 | 2022 | 2023 | 2023 (US$) | |:---|:---|:---|:---|:---| | Net cash provided by operating activities | 7,220,217 | 11,479,308 | 13,360,967 | 1,881,851 | | Net cash used in investing activities | (8,756,533) | (16,041,890) | (12,252,751) | (1,725,762) | | Net cash (used in) / provided by financing activities | (2,903,985) | 7,058,202 | (769,836) | (108,429) | | Net increase/(decrease) in cash, cash equivalents and restricted cash | (4,590,731) | 2,833,726 | 448,223 | 63,131 | [D. Risk Factors](index=21&type=section&id=D.%20Risk%20Factors) This section details significant risks facing ZTO, categorized by business, corporate structure, PRC operations, and shares/ADSs - Business and growth are highly dependent on the development of the e-commerce industry in China, with **over 90% of parcel volume** attributable to e-commerce platforms in December 2023[61](index=61&type=chunk)[72](index=72&type=chunk) - Intense competition from domestic express delivery companies (e.g., YTO, STO, Yunda, SF Express) and potential in-house delivery networks of major e-commerce platforms could adversely affect market share and profitability[81](index=81&type=chunk)[82](index=82&type=chunk) - The VIE structure, necessary due to PRC foreign investment restrictions in domestic mail delivery, poses risks of **severe penalties** or relinquishment of interests if PRC government regulations change or are interpreted differently[63](index=63&type=chunk)[189](index=189&type=chunk)[191](index=191&type=chunk) - Uncertainties in PRC laws and regulations, including those on cybersecurity, data privacy, and overseas listings (e.g., CSRC filing requirements, HFCAA), could significantly limit operations, capital raising, and the value of ADSs[65](index=65&type=chunk)[66](index=66&type=chunk)[70](index=70&type=chunk)[145](index=145&type=chunk)[148](index=148&type=chunk)[153](index=153&type=chunk) - The dual-class share structure grants Mr. Meisong Lai (founder) **77.7% of aggregate voting power** as of March 31, 2024, limiting other shareholders' influence on corporate matters[71](index=71&type=chunk)[271](index=271&type=chunk) [Summary of Risk Factors](index=21&type=section&id=SUMMARY%20OF%20RISK%20FACTORS) This section provides a high-level overview of significant risks, categorized into business, corporate structure, PRC operations, and shares/ADSs - Business risks include high dependency on China's e-commerce, reliance on third-party e-commerce platforms, risks with network partners, intense competition, service disruptions, technology system failures, labor-intensive operations, and risks associated with parcel handling and transportation[61](index=61&type=chunk)[62](index=62&type=chunk) - Corporate structure risks center on ZTO's Cayman Islands holding company status and reliance on VIE contractual arrangements, which may not be as effective as direct ownership and are subject to PRC government scrutiny[63](index=63&type=chunk) - Risks related to doing business in China include changes in economic/political conditions, significant government oversight, legal system uncertainties, limitations on dividend distribution from PRC subsidiaries, and the inability of PCAOB to inspect auditors, potentially leading to delisting under HFCAA[64](index=64&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk)[70](index=70&type=chunk) - Risks related to shares and ADSs involve volatile trading prices, the dual-class share structure limiting shareholder influence, and the company being a 'controlled company' under NYSE rules[71](index=71&type=chunk) [Risks Related to Our Business and Industry](index=23&type=section&id=RISKS%20RELATED%20TO%20OUR%20BUSINESS%20AND%20INDUSTRY) This section details risks inherent to ZTO's business, including e-commerce reliance, intense competition, and operational challenges - **Over 90% of ZTO's parcel volume** in December 2023 was attributable to e-commerce platforms, making its business highly dependent on the e-commerce industry's development and regulatory environment in China[72](index=72&type=chunk) - ZTO faces intense competition from leading domestic express delivery companies (e.g., YTO, STO, Yunda, J&T, SF Express, JD Logistics, China Post) and potential in-house delivery networks of major e-commerce platforms, leading to pricing pressure and potential market share decline[81](index=81&type=chunk)[82](index=82&type=chunk) - Service disruptions at sorting hubs or network partner outlets due to automation failures, under-capacity, force majeure, disputes, or regulatory orders can adversely impact operations, customer satisfaction, and reputation[86](index=86&type=chunk) - The company's technology systems (Zhongtian system) are critical; failure to improve or effectively utilize them, or to develop new technologies, could harm business operations and growth prospects[87](index=87&type=chunk)[88](index=88&type=chunk) - The business is labor-intensive, with **23,554 employees** and **over 63,000 outsourced personnel** as of December 31, 2023; labor market contraction or unrest could negatively affect operations and increase costs[92](index=92&type=chunk)[95](index=95&type=chunk)[130](index=130&type=chunk) - Compliance with a broad range of PRC laws and regulations (e.g., Postal Law, E-commerce Law, Cybersecurity, Data Protection) is crucial; non-compliance could lead to penalties and business disruptions[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[116](index=116&type=chunk)[118](index=118&type=chunk)[120](index=120&type=chunk)[145](index=145&type=chunk)[148](index=148&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) - Significant capital expenditures are required for infrastructure expansion, totaling **RMB6.7 billion (US$0.9 billion)** in 2023, with inherent risks of funding, asset availability, and return on investment[132](index=132&type=chunk) [Risks Related to Our Corporate Structure](index=41&type=section&id=RISKS%20RELATED%20TO%20OUR%20CORPORATE%20STRUCTURE) This section outlines significant risks associated with ZTO's Variable Interest Entity (VIE) structure in China - ZTO operates domestic mail delivery services through ZTO Express (VIE) due to PRC laws prohibiting foreign investment in this sector[189](index=189&type=chunk) - The contractual arrangements with the VIE, which allow ZTO to direct its activities and receive economic benefits, are subject to significant risks of non-compliance with PRC regulations or changes in legal interpretations[191](index=191&type=chunk)[194](index=194&type=chunk) - Potential PRC government actions could include revoking licenses, imposing fines, restricting operations, requiring restructuring (e.g., terminating VIE agreements), or limiting capital raising, which would severely damage ZTO's business and financial condition[192](index=192&type=chunk) - Shareholders of the VIE may have conflicts of interest with ZTO, potentially breaching contractual obligations or acting against ZTO's best interests, which would necessitate reliance on uncertain PRC legal proceedings[199](index=199&type=chunk)[200](index=200&type=chunk) - New PRC laws, such as the Foreign Investment Law and Overseas Listing Trial Measures, introduce uncertainties that could affect ZTO's corporate structure, business operations, and future capital raising activities[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk) - Contractual arrangements may be scrutinized by PRC tax authorities, potentially leading to additional tax liabilities for ZTO or the VIE through transfer pricing adjustments[206](index=206&type=chunk)[207](index=207&type=chunk) - Loss of ability to use and benefit from material assets held by the VIE due to bankruptcy, dissolution, or liquidation proceedings could materially and adversely affect ZTO's business[208](index=208&type=chunk)[209](index=209&type=chunk) [Risks Related to Doing Business in China](index=48&type=section&id=RISKS%20RELATED%20TO%20DOING%20BUSINESS%20IN%20CHINA) This section outlines extensive risks of operating in China, including economic, political, legal, and regulatory uncertainties - Substantially all of ZTO's assets and operations are in China, making its business highly susceptible to changes in China's economic, political, and social conditions or government policies[210](index=210&type=chunk)[211](index=211&type=chunk)[212](index=212&type=chunk) - The PRC government's significant oversight and discretion over business operations, coupled with evolving laws, could lead to interventions or material adverse changes in ZTO's operations[213](index=213&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) - New CSRC regulations (Overseas Listing Trial Measures) and other PRC government authorities' approvals/filings are required for offshore offerings and future capital raising, with uncertainties regarding approval timelines and potential sanctions[217](index=217&type=chunk)[218](index=218&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk) - ZTO relies on dividends from PRC subsidiaries for cash requirements, but PRC regulations on profit distribution, statutory reserves, and currency conversion can limit the ability to repatriate funds[224](index=224&type=chunk)[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk)[229](index=229&type=chunk)[230](index=230&type=chunk)[234](index=234&type=chunk)[235](index=235&type=chunk) - Fluctuations in exchange rates between Renminbi and U.S. dollars can materially affect ZTO's revenues, earnings, and the value of ADSs, with limited hedging options available in China[231](index=231&type=chunk)[232](index=232&type=chunk)[233](index=233&type=chunk) - Potential classification as a PRC resident enterprise for tax purposes could result in a **25% enterprise income tax** on global income and withholding taxes on dividends/gains for non-PRC shareholders[249](index=249&type=chunk)[250](index=250&type=chunk)[251](index=251&type=chunk) - The HFCAA poses a risk of delisting from U.S. exchanges if the PCAOB is unable to inspect ZTO's auditor for **two consecutive years**, despite the PCAOB vacating its prior determination in December 2022[264](index=264&type=chunk)[265](index=265&type=chunk)[266](index=266&type=chunk) [Risks Related to Our Shares and ADSs](index=61&type=section&id=RISKS%20RELATED%20TO%20OUR%20SHARES%20AND%20ADSS) This section addresses risks specific to ZTO's listed securities, including price volatility and the dual-class share structure - Trading prices of ZTO's ADSs and Class A ordinary shares are volatile, influenced by broad market factors, industry performance, and company-specific events, potentially leading to substantial losses for investors[267](index=267&type=chunk)[268](index=268&type=chunk) - The dual-class share structure, with Mr. Meisong Lai holding **77.7% of aggregate voting power** as of March 31, 2024, limits other shareholders' ability to influence corporate matters[269](index=269&type=chunk)[270](index=270&type=chunk)[271](index=271&type=chunk) - As a 'controlled company' under NYSE rules, ZTO may rely on exemptions from certain corporate governance requirements, potentially affording less protection to shareholders[272](index=272&type=chunk)[273](index=273&type=chunk) - Short-seller allegations, even if unsubstantiated, can lead to significant resource expenditure for investigation and defense, negative publicity, and adverse impacts on market price[274](index=274&type=chunk)[275](index=275&type=chunk)[276](index=276&type=chunk) - Conversion of convertible senior notes (**US$1 billion due 2027**) may dilute existing shareholders' ownership interests and encourage short selling, affecting share prices[281](index=281&type=chunk)[282](index=282&type=chunk) - The amount, timing, and distribution of dividends are at the board's discretion, and future dividends depend on operations, cash flow, and PRC regulatory restrictions[285](index=285&type=chunk)[286](index=286&type=chunk) - Enforceability of civil liabilities and judgments obtained against ZTO or its directors/officers in U.S. or Hong Kong courts may be limited due to the company's Cayman Islands incorporation and primary operations in China[290](index=290&type=chunk)[291](index=291&type=chunk)[295](index=295&type=chunk) [Item 4. Information on the Company](index=66&type=section&id=Item%204.%20INFORMATION%20ON%20THE%20COMPANY) This section provides a comprehensive overview of ZTO Express, detailing its history, business operations, network, and corporate structure - ZTO Express commenced express delivery services in January 2009, evolving into a Cayman Islands holding company (ZTO) in April 2015 to facilitate financing and offshore listing[319](index=319&type=chunk)[321](index=321&type=chunk) - The company operates through a Variable Interest Entity (VIE), ZTO Express Co., Ltd., due to PRC foreign ownership restrictions in mail delivery services, with contractual arrangements ensuring effective control[322](index=322&type=chunk)[324](index=324&type=chunk) - ZTO is a leading express delivery company in China, with an extensive network comprising **99 sorting hubs**, over **3,900 line-haul routes**, and approximately **6,000 direct network partners**[329](index=329&type=chunk) - The company's service offerings include domestic express delivery, enterprise services, ancillary services (Cash-on-Delivery), and international express services[331](index=331&type=chunk) - ZTO leverages its proprietary 'Zhongtian system' as a technology backbone for operational management, network management, settlement, finance, and data analytics[365](index=365&type=chunk)[366](index=366&type=chunk)[367](index=367&type=chunk)[368](index=368&type=chunk) - The company is subject to a broad range of PRC laws and regulations covering foreign investment, express delivery services, road transportation, cybersecurity, overseas listing, employment, and foreign exchange[389](index=389&type=chunk)[390](index=390&type=chunk)[392](index=392&type=chunk)[393](index=393&type=chunk)[394](index=394&type=chunk)[395](index=395&type=chunk)[396](index=396&type=chunk)[397](index=397&type=chunk)[398](index=398&type=chunk)[399](index=399&type=chunk)[400](index=400&type=chunk)[401](index=401&type=chunk)[402](index=402&type=chunk)[403](index=403&type=chunk)[405](index=405&type=chunk)[406](index=406&type=chunk)[408](index=408&type=chunk)[409](index=409&type=chunk)[410](index=410&type=chunk)[411](index=411&type=chunk)[412](index=412&type=chunk)[413](index=413&type=chunk)[415](index=415&type=chunk)[416](index=416&type=chunk)[417](index=417&type=chunk)[418](index=418&type=chunk)[419](index=419&type=chunk)[420](index=420&type=chunk)[422](index=422&type=chunk)[423](index=423&type=chunk)[424](index=424&type=chunk)[426](index=426&type=chunk)[427](index=427&type=chunk)[428](index=428&type=chunk)[429](index=429&type=chunk)[431](index=431&type=chunk)[433](index=433&type=chunk)[434](index=434&type=chunk)[435](index=435&type=chunk)[436](index=436&type=chunk)[437](index=437&type=chunk)[438](index=438&type=chunk)[439](index=439&type=chunk)[440](index=440&type=chunk)[441](index=441&type=chunk)[442](index=442&type=chunk)[443](index=443&type=chunk)[444](index=444&type=chunk)[445](index=445&type=chunk)[446](index=446&type=chunk)[447](index=447&type=chunk)[448](index=448&type=chunk)[449](index=449&type=chunk)[450](index=450&type=chunk)[451](index=451&type=chunk)[452](index=452&type=chunk)[453](index=453&type=chunk)[454](index=454&type=chunk)[456](index=456&type=chunk)[457](index=457&type=chunk)[458](index=458&type=chunk)[460](index=460&type=chunk)[461](index=461&type=chunk)[462](index=462&type=chunk)[463](index=463&type=chunk)[464](index=464&type=chunk)[465](index=465&type=chunk)[466](index=466&type=chunk)[467](index=467&type=chunk)[468](index=468&type=chunk)[469](index=469&type=chunk)[470](index=470&type=chunk)[471](index=471&type=chunk)[472](index=472&type=chunk)[473](index=473&type=chunk)[475](index=475&type=chunk)[476](index=476&type=chunk)[477](index=477&type=chunk) [Item 4A. Unresolved Staff Comments](index=104&type=section&id=Item%204A.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments to report [Item 5. Operating and Financial Review and Prospects](index=107&type=section&id=Item%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes ZTO's financial condition and results, highlighting key performance drivers, liquidity, and capital resources - ZTO's operating results are significantly influenced by demand from China's e-commerce industry, market conditions, the operating leverage of its network partner model, and continuous investments in infrastructure, technology, and personnel[494](index=494&type=chunk)[495](index=495&type=chunk)[496](index=496&type=chunk)[497](index=497&type=chunk) Key Financial Highlights (RMB in thousands) | Indicator | 2022 | 2023 | Change (%) | |:---|:---|:---|:---| | Revenues | 35,376,996 | 38,418,915 | 8.6 | | Cost of revenues | (26,337,721) | (26,756,389) | 1.6 | | Gross profit | 9,039,275 | 11,662,526 | 29.0 | | Income from operations | 7,736,481 | 10,007,924 | 29.4 | | Net Income attributable to ZTO Express (Cayman) Inc. | 6,809,056 | 8,749,004 | 28.5 | - Revenues increased by **8.6% to RMB38.4 billion** in 2023, driven by a **23.8% increase in parcel volume** to 30,202 million, partially offset by an 11.3% decrease in unit price per parcel[514](index=514&type=chunk) - Gross profit increased by **29.0% to RMB11.7 billion** in 2023, with gross profit margin rising to **30.4%** from 25.6% in 2022, primarily due to parcel volume growth and **18.0% unit cost productivity gain**[518](index=518&type=chunk) - Net cash provided by operating activities was **RMB13.4 billion (US$1.9 billion)** in 2023, while net cash used in investing activities was **RMB12.3 billion (US$1.7 billion)**[542](index=542&type=chunk)[549](index=549&type=chunk)[550](index=550&type=chunk)[552](index=552&type=chunk) - Material cash requirements as of December 31, 2023, include **RMB4.6 billion (US$647.0 million)** in capital commitments and **RMB7.8 billion (US$1.1 billion)** in short-term bank borrowings[555](index=555&type=chunk)[556](index=556&type=chunk)[557](index=557&type=chunk) [A. Operating Results](index=107&type=section&id=A.%20Operating%20Results) This section analyzes ZTO's operating performance, detailing revenue and cost drivers and providing a comparative analysis for 2023 versus 2022 - Revenues are primarily driven by parcel volume and network transit fees, with express delivery services accounting for **92.4% of total revenues** in 2023[501](index=501&type=chunk) Revenue Breakdown (RMB in thousands) | Category | 2021 | % | 2022 | % | 2023 | % | |:---|:---|:---|:---|:---|:---|:---| | Express delivery services | 27,450,922 | 90.3 | 32,575,698 | 92.1 | 35,488,060 | 92.4 | | Freight forwarding services | 1,529,601 | 5.0 | 1,212,677 | 3.4 | 906,802 | 2.4 | | Sale of accessories | 1,231,283 | 4.0 | 1,384,674 | 3.9 | 1,876,624 | 4.9 | | Others | 194,033 | 0.7 | 203,947 | 0.6 | 147,429 | 0.3 | | Total revenues | 30,405,839 | 100.0 | 35,376,996 | 100.0 | 38,418,915 | 100.0 | - Annual parcel volume increased from **22,289 million** in 2021 to **30,202 million** in 2023, reflecting market share growth[502](index=502&type=chunk) Cost of Revenues Breakdown (RMB in thousands) | Category | 2021 | % | 2022 | % | 2023 | % | |:---|:---|:---|:---|:---|:---|:---| | Line-haul transportation cost | 11,487,810 | 37.8 | 12,480,170 | 35.3 | 13,591,627 | 35.4 | | Sorting hub cost | 6,774,595 | 22.3 | 7,845,491 | 22.2 | 8,253,522 | 21.5 | | Freight forwarding cost | 1,326,557 | 4.4 | 1,137,140 | 3.2 | 854,533 | 2.2 | | Cost of accessories sold | 349,647 | 1.1 | 463,448 | 1.3 | 513,391 | 1.3 | | Other costs | 3,877,853 | 12.7 | 4,411,472 | 12.4 | 3,543,316 | 9.2 | | Total cost of revenues | 23,816,462 | 78.3 | 26,337,721 | 74.4 | 26,756,389 | 69.6 | - Gross profit increased by **29.0% to RMB11.7 billion** in 2023, with gross profit margin improving to **30.4%** from 25.6% in 2022, driven by parcel volume growth and cost productivity gains[518](index=518&type=chunk) - Income tax expense increased by **18.7% to RMB1,938.6 million** in 2023, with an effective tax rate of **18.1%** (down from 19.7% in 2022) due to an income tax refund for 'Key Software Enterprise' status[522](index=522&type=chunk) - Net income increased to **RMB8,754.5 million (US$1,233.0 million)** in 2023 from RMB6,659.0 million in 2022[523](index=523&type=chunk) [B. Liquidity and Capital Resources](index=115&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) ZTO's liquidity is sourced from operations and financing, with significant cash requirements for capital expenditures and debt obligations - Principal liquidity sources are cash flows from operating activities and financing activities, including **HK$11.1 billion (US$1.4 billion)** from Hong Kong listing in 2020 and **US$1 billion** from convertible senior notes in 2022[542](index=542&type=chunk)[543](index=543&type=chunk)[544](index=544&type=chunk) Cash, Cash Equivalents and Restricted Cash (RMB in thousands) | Year Ended December 31 | Amount | |:---|:---| | 2021 | 9,769,361 | | 2022 | 12,603,087 | | 2023 | 13,051,310 | - As of December 31, 2023, cash, cash equivalents, restricted cash, and short-term investments totaled **RMB20.5 billion (US$2.9 billion)**, with **91.8% held by PRC entities** and **85.4% denominated in Renminbi**[545](index=545&type=chunk) - Material cash requirements as of December 31, 2023, include **RMB4.6 billion (US$647.0 million)** in capital commitments, **RMB714.9 million (US$100.7 million)** in operating lease liabilities, and **RMB7.8 billion (US$1.1 billion)** in short-term bank borrowings[555](index=555&type=chunk)[556](index=556&type=chunk)[557](index=557&type=chunk) - The company has **US$1 billion in convertible senior notes due 2027**, with holders having a repurchase right on September 2, 2025[558](index=558&type=chunk) - ZTO's ability to pay dividends relies on distributions from PRC subsidiaries, which are subject to PRC accounting standards, statutory reserve requirements, and withholding taxes[561](index=561&type=chunk) [Item 6. Directors, Senior Management and Employees](index=119&type=section&id=Item%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section provides information on ZTO's directors, executive officers, compensation, board practices, and employee details - The board of directors consists of ten directors, including founder Meisong Lai (Chairman and CEO), Jilei Wang (Director and VP of Infrastructure Management), Hongqun Hu (Director and COO), and Huiping Yan (CFO)[566](index=566&type=chunk)[575](index=575&type=chunk) - For 2023, aggregate cash compensation to executive officers and directors was approximately **RMB100.3 million (US$14.1 million)**[582](index=582&type=chunk) - ZTO has two share incentive plans (2016 and 2024) and an Employee Shareholding Platform to grant awards to employees, directors, and consultants[583](index=583&type=chunk)[588](index=588&type=chunk)[592](index=592&type=chunk)[596](index=596&type=chunk)[600](index=600&type=chunk) - The company has three board committees: Audit, Compensation, and Nominating and Corporate Governance, with independent directors meeting NYSE requirements[604](index=604&type=chunk)[605](index=605&type=chunk)[607](index=607&type=chunk)[608](index=608&type=chunk) - As of December 31, 2023, ZTO had **23,554 employees** and **over 63,000 outsourced workers**, with a functional breakdown including sorting (33.4%), transportation (15.3%), and management/administration (18.6%)[617](index=617&type=chunk) - Mr. Meisong Lai beneficially owns **26.0% of total ordinary shares** and holds **77.7% of the aggregate voting power** as of March 31, 2024, due to the dual-class share structure[622](index=622&type=chunk) [Item 7. Major Shareholders and Related Party Transactions](index=133&type=section&id=Item%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details ZTO's major shareholders and various related party transactions, including agreements with Alibaba and Cainiao Network - Major shareholders include Zto Lms Holding Limited (controlled by Meisong Lai), Alibaba Group Holding Limited, Jianfa Lai and Zto Ljf Holding Limited, and Zto Wjl Holding Limited[622](index=622&type=chunk) - Contractual arrangements with the VIE (ZTO Express) and its shareholders are in place to ensure ZTO's effective control and economic benefits, as detailed in Item 4.C[631](index=631&type=chunk) - Investor Rights Agreement with Alibaba ZT Investment Limited and Cainiao Smart Logistics Investment Limited grants them rights such as right of first offer, preemptive rights, and restrictions on transfers of company securities[636](index=636&type=chunk)[637](index=637&type=chunk)[638](index=638&type=chunk) - ZTO incurred **RMB330.2 million (US$46.5 million)** for purchases of supplies from Shanghai Mingyu Barcode Technology Ltd. (controlled by chairman's brother) in 2023[645](index=645&type=chunk) - Transactions with ZTO LTL (equity investee) in 2023 included **RMB862.9 million (US$121.5 million)** in transportation service fees paid and **RMB45.9 million (US$6.5 million)** in property leasing income derived[647](index=647&type=chunk) - A **RMB500.0 million loan** to Zhongkuai (Tonglu) Future City Industrial Development Co., Ltd. (controlled by chairman and CEO) was extended for 36 months at a 5% annualized interest rate in December 2023[648](index=648&type=chunk) [Item 8. Financial Information](index=136&type=section&id=Item%208.%20FINANCIAL%20INFORMATION) This section confirms the inclusion of financial statements and addresses legal proceedings and dividend policy - ZTO's consolidated financial statements are appended as part of this annual report[651](index=651&type=chunk) - Most putative securities class action lawsuits against the company and its directors/officers were voluntarily dismissed in 2021, with one case resulting in a judgment in favor of the defendants[653](index=653&type=chunk) - A semi-annual cash dividend policy, effective 2024, was approved on March 19, 2024, aiming to distribute **no less than 40% of distributable profit** annually[655](index=655&type=chunk) - The board of directors approved a cash dividend of **US$0.62 per ADS** and ordinary share for fiscal year 2023, payable to holders of record as of April 10, 2024[285](index=285&type=chunk)[655](index=655&type=chunk) - Dividend distributions are subject to board discretion, Cayman Islands law, and PRC regulations restricting dividend payments from PRC subsidiaries[656](index=656&type=chunk) [Item 9. The Offer and Listing](index=137&type=section&id=Item%209.%20THE%20OFFER%20AND%20LISTING) This section provides details on ZTO's securities listings on the New York Stock Exchange and the Hong Kong Stock Exchange - ZTO's ADSs have been listed on the NYSE under the symbol 'ZTO' since October 27, 2016[325](index=325&type=chunk)[658](index=658&type=chunk)[660](index=660&type=chunk) - ZTO's Class A ordinary shares have been listed on the Hong Kong Stock Exchange under the stock code '2057' since September 29, 2020[326](index=326&type=chunk)[659](index=659&type=chunk)[660](index=660&type=chunk) [Item 10. Additional Information](index=138&type=section&id=Item%2010.%20ADDITIONAL%20INFORMATION) This section provides supplementary information on corporate governance, material contracts, exchange controls, and tax considerations - ZTO's ordinary shares are divided into Class A (one vote per share) and Class B (ten votes per share), with Class B convertible to Class A under specific conditions[663](index=663&type=chunk)[664](index=664&type=chunk)[666](index=666&type=chunk) - Dividends can be declared from profits or share premium, provided the company can pay its debts[665](index=665&type=chunk) - Key differences in corporate law between Cayman Islands and U.S. (Delaware) include merger procedures, shareholder suit rights, director fiduciary duties, and provisions for shareholder action by written consent[683](index=683&type=chunk)[684](index=684&type=chunk)[690](index=690&type=chunk)[694](index=694&type=chunk)[696](index=696&type=chunk)[697](index=697&type=chunk) - PRC tax considerations include potential classification as a 'resident enterprise' (**25% global income tax**), withholding tax on dividends (**10% standard**), and tax on indirect transfers of equity interests[711](index=711&type=chunk)[712](index=712&type=chunk)[714](index=714&type=chunk) - U.S. federal income tax considerations for U.S. Holders include dividend taxation, capital gains/losses on disposition, and potential **Passive Foreign Investment Company (PFIC) status**, which could lead to significantly increased tax liabilities[718](index=718&type=chunk)[723](index=723&type=chunk)[726](index=726&type=chunk)[727](index=727&type=chunk)[728](index=728&type=chunk)[733](index=733&type=chunk)[734](index=734&type=chunk)[736](index=736&type=chunk) [Item 11. Quantitative and Qualitative Disclosures About Market Risk](index=154&type=section&id=Item%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses ZTO's exposure to foreign exchange, interest rate, and commodity price risks - ZTO's primary market risks are foreign exchange risk, interest rate risk, and commodity price risk[742](index=742&type=chunk) - Foreign exchange risk primarily stems from RMB/USD fluctuations, affecting the value of U.S. dollar-denominated assets and conversions; as of December 31, 2023, **RMB2.7 billion** in cash and investments were denominated in U.S. dollars[743](index=743&type=chunk)[744](index=744&type=chunk)[745](index=745&type=chunk) - Interest rate risk relates to interest income from bank deposits and costs of floating-rate borrowings, though the company has not been exposed to material risks[746](index=746&type=chunk) - Commodity price risk is mainly associated with fuel prices for line-haul transportation; significant increases could raise transportation expenses and reduce gross profits[749](index=749&type=chunk) [Item 12. Description of Securities Other Than Equity Securities](index=155&type=section&id=Item%2012.%20DESCRIPTION%20OF%20SECURITIES%20OTHER%20THAN%20EQUITY%20SECURITIES) This section focuses on the American Depositary Shares (ADSs) and associated fees for holders - ADS holders may be charged **US$5.00 per 100 ADSs** for issuance, delivery, reduction, cancellation, or surrender[750](index=750&type=chunk) - Additional charges include **US$1.50 per ADR** for transfers, up to **US$0.05 per ADS** for cash distributions, and up to **US$0.05 per ADS** per calendar year for depositary services[751](index=751&type=chunk) - The depositary (JPMorgan Chase Bank, N.A.) may deduct fees for foreign currency conversions and is reimbursed by ZTO for certain ADR program expenses[752](index=752&type=chunk)[753](index=753&type=chunk) - For the year ended December 31, 2023, ZTO received a reimbursement of **US$5.3 million** from the depositary[754](index=754&type=chunk) Part II [Item 13. Defaults, Dividend Arrearages and Delinquencies](index=157&type=section&id=ITEM%2013.%20DEFAULTS%2C%20DIVIDEND%20ARREARAGES%20AND%20DELINQUENCIES) There are no defaults, dividend arrearages, or delinquencies to report for the period [Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds](index=157&type=section&id=ITEM%2014.%20MATERIAL%20MODIFICATIONS%20TO%20THE%20RIGHTS%20OF%20SECURITY%20HOLDERS%20AND%20USE%20OF%20PROCEEDS%20MATERIAL%20MODIFICATIONS%20TO%20THE%20RIGHTS%20OF%20SECURITY%20HOLDERS) There have been no material modifications to the rights of security holders, and the section on use of proceeds is not applicable [Item 15. Controls and Procedures](index=157&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were **effective** as of December 31, 2023[757](index=757&type=chunk) - Management assessed and concluded that internal control over financial reporting was **effective** as of December 31, 2023, based on the COSO 2013 framework[759](index=759&type=chunk) - Deloitte Touche Tohmatsu Certified Public Accountants LLP audited and issued an **unqualified opinion** on the effectiveness of internal control over financial reporting as of December 31, 2023[760](index=760&type=chunk) - There were **no material changes** in internal control over financial reporting during the period covered by this annual report[761](index=761&type=chunk) [Item 16A. Audit Committee Financial Expert](index=158&type=section&id=ITEM%2016A.%20AUDIT%20COMMITTEE%20FINANCIAL%20EXPERT) Herman Yu, an independent director, has been determined to qualify as an 'audit committee financial expert' - Herman Yu, an independent director and audit committee member, is designated as an 'audit committee financial expert'[762](index=762&type=chunk) [Item 16B. Code of Ethics](index=158&type=section&id=ITEM%2016B.%20CODE%20OF%20ETHICS) ZTO adopted a code of business conduct and ethics in October 2016, applicable to all directors, officers, and employees - A code of business conduct and ethics, applicable to directors, officers, and employees, was adopted in October 2016[763](index=763&type=chunk) - The code is available on the company's website at http://ir.zto.com[763](index=763&type=chunk) [Item 16C. Principal Accountant Fees and Services](index=158&type=section&id=ITEM%2016C.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) This section details fees paid to Deloitte for professional services, which are pre-approved by the audit committee Principal Accountant Fees (RMB in thousands) | Category | 2022 | 2023 | |:---|:---|:---| | Audit fees and audit-related fees | 18,840 | 18,640 | | All other fees | 944 | 920 | - The audit committee pre-approves all audit and other services provided by Deloitte Touche Tohmatsu Certified Public Accountants LLP[766](index=766&type=chunk) [Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers](index=159&type=section&id=ITEM%2016E.%20PURCHASES%20OF%20EQUITY%20SECURITIES%20BY%20THE%20ISSUER%20AND%20AFFILIATED%20PURCHASERS) ZTO has an ongoing US$2 billion share repurchase program extended through June 30, 2025 - ZTO has a share repurchase program, initially for US$500 million, extended and increased to **US$2 billion** through June 30, 2025[768](index=768&type=chunk) - As of December 31, 2023, **42,501,325 ADSs** were repurchased for **US$1,063.0 million**, at a weighted average price of **US$25.01 per ADS**[768](index=768&type=chunk) ADS Repurchases in 2023 | Period | Total Number of ADSs Purchased | Average Price Paid per ADS (US$) | |:---|:---|:---| | February 2023 | 1,224,100 | 24.80 | | March 2023 | 466,100 | 23.98 | | June 2023 | 222,782 | 25.01 | | July 2023 | 1,710,599 | 24.92 | | August 2023 | 75,148 | 24.04 | | November 2023 | 2,242,347 | 22.30 | | Total | 58,126,700 | N/A | [Item 16G. Corporate Governance](index=159&type=section&id=ITEM%2016G.%20CORPORATE%20GOVERNANCE) As a foreign private issuer, ZTO may follow home country corporate governance practices, which can differ from NYSE standards - ZTO, as a Cayman Islands company and foreign private issuer, follows home country corporate governance practices, which may differ from NYSE standards[771](index=771&type=chunk) - The company elected to adopt its 2024 Share Incentive Plan without shareholder approval, following home country practice, which may afford less protection to shareholders[771](index=771&type=chunk) [Item 16K. Cybersecurity](index=160&type=section&id=ITEM%2016K.%20CYBERSECURITY) ZTO has implemented robust cybersecurity risk management processes overseen by the board, with no material incidents reported - ZTO has robust processes for assessing, identifying, and managing cybersecurity risks, integrated into its overall enterprise risk management system[773](index=773&type=chunk) - A comprehensive cybersecurity threat defense system is in place, covering network, host, and application security, with capabilities for threat defense, monitoring, analysis, and response[774](index=774&type=chunk) - The board of directors oversees cybersecurity risk management, receiving quarterly updates from the CEO, CFO, and cybersecurity officer[776](index=776&type=chunk)[777](index=777&type=chunk) - As of the report date, **no material cybersecurity incidents or threats** have affected or are reasonably likely to materially affect the company's business, strategy, results, or financial condition[775](index=775&type=chunk) Part III [Item 17. Financial Statements](index=161&type=section&id=ITEM%2017.%20FINANCIAL%20STATEMENTS) The company has elected to provide financial statements pursuant to Item 18 [Item 18. Financial Statements](index=161&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section presents the audited consolidated financial statements of ZTO for fiscal years 2021-2023, prepared under U.S. GAAP - The consolidated financial statements for the years ended December 31, 2021, 2022, and 2023 are included, prepared in accordance with U.S. GAAP[790](index=790&type=chunk) - Deloitte Touche Tohmatsu Certified Public Accountants LLP issued an **unqualified opinion** on the financial statements and the effectiveness of internal control over financial reporting[790](index=790&type=chunk)[791](index=791&type=chunk) - Key financial statements include Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Shareholders' Equity, and Consolidated Statements of Cash Flows[787](index=787&type=chunk) - Notes to the financial statements detail significant accounting policies, including principles of consolidation (VIE structure), fair value measurements, revenue recognition, and income taxes[830](index=830&type=chunk)[831](index=831&type=chunk)[861](index=861&type=chunk)[867](index=867&type=chunk)[875](index=875&type=chunk)[879](index=879&type=chunk)[880](index=880&type=chunk)[885](index=885&type=chunk)[887](index=887&type=chunk)[891](index=891&type=chunk)[903](index=903&type=chunk)[906](index=906&type=chunk)[912](index=912&type=chunk)[914](index=914&type=chunk) - The VIE contributed **81.4% of consolidated revenues** in 2023 and accounted for **35.7% of consolidated assets** and **58.5% of consolidated liabilities** as of December 31, 2023[848](index=848&type=chunk) - As of December 31, 2023, the aggregate amount of capital and statutory reserves restricted in PRC entities, not available for distribution, was **RMB32,867,325 thousand**[1017](index=1017&type=chunk)

Financial Performance - Revenue increased by 8.6% to RMB 38,418.9 million in 2023 compared to RMB 35,377.0 million in 2022[12] - Gross profit rose by 29.0% to RMB 11,662.5 million in 2023 from RMB 9,039.3 million in 2022[12] - Net profit grew by 31.5% to RMB 8,754.5 million in 2023 compared to RMB 6,659.0 million in 2022[12] - Adjusted EBITDA increased by 25.0% to RMB 14,107.3 million in 2023 from RMB 11,289.1 million in 2022[12] - Adjusted net profit rose by 32.3% to RMB 9,005.9 million in 2023 compared to RMB 6,806.0 million in 2022[12] - Basic adjusted earnings per ADS increased by 29.7% to RMB 11.14 in 2023 from RMB 8.59 in 2022[12] - Diluted adjusted earnings per ADS grew by 27.6% to RMB 10.90 in 2023 compared to RMB 8.54 in 2022[12] - Revenue increased by 8.6% from RMB 35,377.0 million in 2022 to RMB 38,418.9 million in 2023 due to post-pandemic recovery in express delivery demand[17] - Net profit for 2023 was RMB 8,754,457 thousand, compared to RMB 6,658,966 thousand in 2022[15] - Adjusted net profit for 2023 was RMB 9,005,920 thousand, up from RMB 6,805,999 thousand in 2022[15] - EBITDA for 2023 was RMB 13,857,799 thousand, compared to RMB 11,153,363 thousand in 2022[15] - Adjusted EBITDA for 2023 was RMB 14,107,290 thousand, up from RMB 11,289,073 thousand in 2022[15] - Net profit attributable to ordinary shareholders for 2023 was RMB 8,749,004 thousand, compared to RMB 6,809,056 thousand in 2022[16] - Adjusted net profit attributable to ordinary shareholders for 2023 was RMB 9,000,467 thousand, up from RMB 6,956,089 thousand in 2022[16] - Basic earnings per share for 2023 were RMB 10.83, compared to RMB 8.41 in 2022[16] - Diluted earnings per share for 2023 were RMB 10.60, compared to RMB 8.36 in 2022[16] - The core express business revenue increased by 9.8% from RMB 34,164.3 million in 2022 to RMB 37,512.1 million in 2023, driven by a 23.8% increase in parcel volume and an 11.3% decrease in parcel unit price[31] - The freight forwarding service revenue decreased by 25.2% in 2023 compared to 2022, primarily due to post-pandemic e-commerce price declines[32] - The total operating costs increased by 1.6% from RMB 26,337.7 million in 2022 to RMB 26,756.4 million in 2023[33] - The gross profit increased by 29.0% from RMB 9,039.3 million in 2022 to RMB 11,662.5 million in 2023, with the gross margin rising from 25.6% to 30.4%[35] - The total operating expenses increased by 27.0% from RMB 1,302.8 million in 2022 to RMB 1,654.6 million in 2023[36] - The interest income increased by 40.3% from RMB 503.7 million in 2022 to RMB 706.8 million in 2023[37] - The interest expense increased by 52.0% from RMB 190.5 million in 2022 to RMB 289.5 million in 2023[37] - The financial instruments fair value change income increased by 255.7% from RMB 46.2 million in 2022 to RMB 164.5 million in 2023[37] - The foreign exchange gain decreased by 36.5% from RMB 147.3 million in 2022 to RMB 93.5 million in 2023[37] - Income tax expense increased by 18.7% from RMB 1,633.3 million in 2022 to RMB 1,938.6 million in 2023, with the overall tax rate decreasing by 1.6% due to a tax refund of RMB 207.1 million received in the third quarter[38] - Net profit increased by 31.5% from RMB 6,659.0 million in 2022 to RMB 8,754.5 million in 2023[39] - The asset-liability ratio increased from 30.6% in 2022 to 31.9% in 2023[40] - Cash and cash equivalents, restricted cash, and short-term investments totaled RMB 12,333.9 million, RMB 686.6 million, and RMB 7,454.6 million respectively as of December 31, 2023, with 91.8% held by subsidiaries in China and 85.4% denominated in RMB[41] - Outstanding bank loan principal increased from RMB 5,394.4 million in 2022 to RMB 7,766.0 million in 2023, with a weighted average interest rate of 1.6% for short-term bank loans[41] - Capital expenditures totaled approximately RMB 6.7 billion in 2023, down from RMB 7.4 billion in 2022, with future capital expenditures to be funded by existing cash balances and other financing methods[46] - Capital commitments amounted to RMB 4.6 billion as of December 31, 2023, primarily related to the construction of office buildings, sorting centers, and warehouse facilities[46] - The company declared a final dividend of $0.62 per ADS and ordinary share for 2023, representing a 68% increase from 2022, with a payout ratio of 40%[26] - A semi-annual cash dividend policy was adopted starting in 2024, with total semi-annual dividends not less than 40% of the distributable profit for the fiscal year[27] - The share repurchase program was expanded by $500 million to a total of $2 billion, with the effective period extended to June 30, 2025[28] - The company expects the total parcel volume for 2024 to be in the range of 34.73 billion to 35.64 billion, representing a year-over-year growth of 15% to 18%[29] - The company's distributable reserves amounted to RMB 26.9 billion as of December 31, 2023[111] - The company approved a special dividend of $0.37 per ADS for 2022, payable to shareholders on record by April 6, 2023[109] - The company declared a final dividend of $0.62 per ADS and ordinary share for the fiscal year ending December 31, 2023, payable by April 10, 2024[109] - The company issued $1 billion in convertible senior notes in August 2022, with a 1.50% annual interest rate, maturing on September 1, 2027[108] - As of December 31, 2023, the $1 billion in convertible senior notes remain unexercised[108] - Less than 30% of the company's total revenue for the fiscal year ending December 31, 2023, came from its top five customers, and less than 30% of total procurement came from its top five suppliers[103] - The company made charitable donations totaling RMB 8.2 million during the reporting period[107] - The company maintains the required public float percentage as per listing rules[107] - No bonds were issued by the company during the reporting period[107] Operational Infrastructure - The company operates a network covering 99% of cities and counties in China, with approximately 6,000 direct network partners, over 31,000 pickup and delivery points, and more than 110,000 end stations as of December 31, 2023[20] - The logistics infrastructure includes 99 sorting centers, 464 automated sorting lines, and over 3,900 trunk lines served by more than 10,000 self-owned trucks, including over 9,200 high-capacity vehicles[21] - The company’s proprietary Zhongtian system supports daily high-throughput processing of over 100 million orders, utilizing real-time monitoring, order scheduling, and predictive algorithms[22] - The comprehensive unit cost for sorting and transportation decreased in 2023 compared to 2022 due to ongoing digitalization and intelligent upgrades[23] - The company operates under a network partner model, providing express delivery services in China[50] Corporate Governance and Leadership - The company has not separated the roles of Chairman and CEO, currently held by Mr. Lai Meisong, to ensure consistent internal leadership and more effective strategic planning[137] - The Board of Directors includes 3 executive directors, 2 non-executive directors, and 5 independent non-exec directors, maintaining a balance of power and efficient decision-making[137] - The company has established formal and informal channels to ensure the Board receives independent views and opinions, with half of the Board members being independent non-exec directors[142] - Independent non-exec directors' independence is assessed annually, and they can seek independent professional advice at the company's expense if needed[142] - Directors are required to retire by rotation at least once every three years, with Mr. Huang Qin, Mr. Herman Yu, and Mr. Gao Zunming set to retire at the 2024 AGM[143] - Mr. Chen Xudong, appointed as a non-exec director on June 15, 2023, will retire at the AGM but is eligible for re-election[143] - The company has adopted a code of conduct for securities transactions that is no less stringent than the Model Code for Securities Transactions by Directors of Listed Issuers[138] - The company received an exemption from strict compliance with certain provisions of the Model Code for a trading plan by Mr. Wang Jilei[139] - All directors and relevant employees confirmed compliance with the code of conduct and the Model Code during the reporting period[139] - The company has complied with all code provisions of the Corporate Governance Code except for the separation of Chairman and CEO roles[137] - The board of directors held 8 meetings during the reporting period[144] - The company held one annual general meeting, one extraordinary general meeting, and 11 committee meetings during the reporting period[144] - The next annual general meeting is scheduled for June 18, 2024[144] - The audit committee held 4 meetings during the reporting period[150] - The audit committee reviewed and approved the financial results for the fourth quarter and the consolidated financial statements for the fiscal years ending December 31, 2022, and December 31, 2023[150] - The audit committee met with the company's independent auditor, Deloitte Touche Tohmatsu[150] - The audit committee reviewed the effectiveness of the company's internal audit function and its responsibilities under the corporate governance code[150] - The audit committee discussed accounting policies, internal controls, and financial reporting matters with senior management[150] - The independent auditor audited the consolidated financial statements of the group[150] - The compensation committee held three meetings during the reporting period to review and propose executive and director compensation terms[152] - The compensation range for senior management in 2023 was between RMB 1 million and RMB 6 million, with 3 executives earning RMB 1-5 million and 1 executive earning RMB 5-6 million[153] - The nomination and corporate governance committee held two meetings to review board structure, diversity policy, and director succession planning[155] - The environmental, social, and governance (ESG) committee held two meetings to adopt ESG policies and review performance metrics[157] - The company has established a director nomination policy to ensure board diversity and alignment with business needs[158] - The company has adopted a Board Diversity Policy, with 10 directors including 9 male and 1 female (10% of the board)[159] - As of December 31, 2023, the company has 23,554 employees, with 15,072 male (64%) and 8,482 female (36%)[160] - The company approved a semi-annual cash dividend policy, with at least 40% of distributable profits to be paid as dividends starting from 2024[161] - No significant fraud or misconduct impacting financial statements or operations was found in 2023[162] - The company has adopted an Anti-Corruption Policy to ensure ethical business practices and compliance with anti-corruption laws[163] - All directors have met continuous professional development requirements through training and reading materials[164] - The board is responsible for preparing the financial statements for the year ended December 31, 2023, with no significant uncertainties affecting the company's ability to continue as a going concern[165] - The company's risk management and internal control systems are reviewed annually by the Board of Directors, ensuring they are effective and adequate[166] - The company paid RMB 18.64 million for audit services and RMB 920,000 for non-audit services (tax and other consulting services) in 2023[169] - Shareholders can request a special general meeting if they hold at least 10% of the voting rights, and the meeting must be held within 21 days of the request[171] - The company adopted a new set of articles of association on May 1, 2023, allowing for electronic or hybrid general meetings[175] - The Board of Directors adopted a shareholder communication policy on April 20, 2023, to enhance investor relations and ensure timely and accurate information disclosure[174] Shareholder Structure and Equity - Lai Meisong holds 206,100,000 Class B ordinary shares, representing 100% of the Class B shares[177] - Lai Meisong holds 4,989,947 Class A ordinary shares, representing 0.82% of the Class A shares[177] - Wang Jilei holds 42,181,499 Class A ordinary shares, representing 6.95% of the Class A shares[177] - Lai Meisong holds 195,000,000 shares in TuXi Tech (Cayman) Inc., representing 12.46% of the issued shares[181] - Lai Meisong holds 120,000,000 shares in Zhejiang Tongyu Smart Industry Development Co., Ltd., representing 75% of the issued shares[181] - Lai Meisong holds 206,100,000 shares in ZTO Express (Cayman) Inc., representing 34.35% of the issued shares[181] - Wang Jilei holds 45,000,000 shares in TuXi Tech (Cayman) Inc., representing 2.87% of the issued shares[181] - Wang Jilei holds 60,000,000 shares in ZTO Express (Cayman) Inc., representing 10% of the issued shares[181] - Hu Hongqun holds 2,500,000 shares in TuXi Tech (Cayman) Inc., representing 0.15% of the issued shares[181] - Hu Hongqun holds 120,000,000 shares in Zhejiang Tongyu Smart Industry Development Co., Ltd., representing 75% of the issued shares[181] - SCTS Capital Pte. Ltd. holds 118,585,225 A类普通股 (L) representing 19.55% of the total shares[184] - Alibaba Group Holding Limited holds 71,941,287 A类普通股 (L) representing 11.86% of the total shares[184] - Alibaba ZT Investment Limited holds 57,870,370 A类普通股 (L) representing 9.54% of the total shares[185] - Mr. Jianfa Lai holds 66,252,639 A类普通股 (L) representing 10.92% of the total shares[185] - Invesco Advisers, Inc. holds 42,154,941 A类普通股 (L) representing 6.95% of the total shares[185] - JPMorgan Chase & Co. holds 40,743,250 A类普通股 (L) representing 6.71% of the total shares[185] - Zto Lms Holding Limited holds 206,100,000 B类普通股 (L) representing 100.00% of the total shares[185] - Alibaba is considered the beneficial owner of 71,941,287 A类普通股 held by Ali ZT, Cainiao Smart, NRF, Taobao, and Cainiao Hong Kong[186] - Mr. Jianfa Lai has the right to direct the sale of 33,598 A类普通股 held by ZTO ES[187] - Mr. Jilei Wang has the right to direct the sale of 120,000 A类普通股 held by ZTO ES[188] - 3,616,200 Class A ordinary shares (long position) and 619,800 Class A ordinary shares (short position) are held through physically settled listed derivatives[189] - 3,741,666 Class A ordinary shares (short position) are held through physically settled unlisted derivatives[189] - 456,093 Class A ordinary shares (long position) and 674,302 Class A ordinary shares (short position) are held through cash-settled unlisted derivatives[189] - 3,304,415 Class A ordinary shares (long position) and 12,816 Class A ordinary shares (short position) are held through listed derivatives that are convertible instruments[189] - Lai Meisong holds an interest in 206,100,000 Class B ordinary shares through Zto Lms Holding Limited[189] - The 2016 Plan has a cap of 21,000,000 shares and no new shares will be issued for awards under the plan[192] - As of March 31, 2024, 5,592,500 Class A ordinary shares in the form of restricted share units have been granted under the 2016 Plan[192] - The 2016 Plan allows for the granting of stock options, restricted shares, or other types of awards approved by the plan administrator[194] - The 2016 Plan has a remaining term of approximately two years and can be amended or terminated by the board of directors[199] - Awards under the 2016 Plan are evidenced by award agreements that specify the terms, conditions, and restrictions of each award[195] - 361,035 restricted share units were vested during the reporting period[200] - 23,830 restricted share units were

Summary of Key Points Core Viewpoint - The report highlights the performance and investment strategy of Li Xiaoxing, a prominent fund manager at Yinhua Fund, as of the first quarter of 2024, indicating a cautious but optimistic outlook on various sectors amid market adjustments and macroeconomic recovery [1]. Fund Performance - As of the end of Q1 2024, Li Xiaoxing manages a total fund asset size of 27.628 billion yuan, with the best-performing fund being Yinhua Xinyi Flexible Allocation Mixed A, which saw a net value growth rate of -5.51% [1]. - The top ten holdings of the fund have seen changes, with new additions including ZTO Express (02057), Dongfang Wealth (300069.SZ), Salt Lake Co. (000792.SZ), and Zhongmin Resources (002738.SZ) [1]. Sector Analysis - **Consumer Sector**: The consumer industry faces challenges such as insufficient demand and increased competition. However, after three years of valuation adjustments, most consumer stocks are now valued below historical averages, with a focus on high-quality factors expected to perform well in 2024 [3]. - **Pharmaceuticals**: The pharmaceutical sector is under pressure due to high performance comparisons from the previous year, but potential improvements in fundamentals may present investment opportunities [3]. - **Strategic Emerging Industries**: Li Xiaoxing is optimistic about sectors like semiconductors and defense technology, anticipating a recovery in demand driven by AI and other technological advancements [3][4]. - **Renewable Energy**: The lithium battery materials sector is expected to see demand exceed expectations, while the photovoltaic industry is stabilizing after price declines. Wind energy, particularly offshore, remains a strong growth area [3]. - **Defense Industry**: The defense sector is poised for recovery as demand is expected to rebound, with a focus on aerospace and missile technology [4]. - **AI Industry**: The AI sector is viewed as a long-term growth area, with an emphasis on companies that can deliver sustainable earnings [4]. - **Internet Sector**: Internet companies are experiencing a bottoming out of valuations, with potential for growth driven by AI technology [4]. Investment Strategy - Li Xiaoxing emphasizes investing in companies with strong cash flows and market positions, particularly in high-end liquor, white goods, and growth sectors like snacks and cosmetics [3]. - The banking sector is expected to face short-term pressure, but declining deposit rates may alleviate some margin pressures in the future [4]. - The coal sector is gaining recognition for its stable profitability, while the metals sector is benefiting from anticipated interest rate cuts [5]. Fund Manager Performance - During Li Xiaoxing's tenure managing the Yinhua Small and Medium Cap Selected Fund, the cumulative return reached 90.45%, with an average annual return of 7.6% [5].

Investment Rating - The report assigns a "Buy-A/Buy-H" rating to ZTO Express-W (02057.HK/ZTO.N) [2] Core Views - ZTO Express is a high-margin player in the mid-to-low-end e-commerce express delivery sector, demonstrating resilience through market cycles [2] - From 2014 to 2023, ZTO's business volume grew 16x, profits increased 21x, with an average gross margin of 29% and diluted ROE of 13% [2] - The express delivery industry is entering a period of rising returns as the capital cycle nears its end, with capital expenditure peaking in 2021 for the industry and 2023 for companies [3] - ZTO's market share increased from 15% in 2016 to 23% in 2023, while its profit share among the "Tongda" group rose from 30% to 62% [3] - The company is positioned at a triple inflection point: easing price wars, improving industry structure, and enhanced liquidity through inclusion in the Hong Kong Stock Connect [3] Company Background - ZTO operates in the mid-to-low-end e-commerce express delivery sector, with over 90% of its parcels being e-commerce related [14] - Despite being the last among the "Tongda" group to be established, ZTO has become the industry leader through innovative strategies and a shared network model [15] - The company's business volume CAGR reached 32% over the past decade, with 2023 volume estimated at 30.2 billion parcels [17] - ZTO's franchise model, combined with its shared network mechanism, has enabled rapid expansion and cost efficiency [19][20] - The company maintains a dual-class share structure, with founder Lai Meisong holding 25.9% and Alibaba as the second-largest shareholder with 8.8% [22] Market Supply and Demand - The express delivery industry is transitioning to the fourth stage of the capital cycle, characterized by improved supply-side conditions and rising returns [32] - Demand growth remains resilient due to trends in parcel miniaturization, increasing e-commerce penetration in lower-tier markets, and rising consumer spending power [36] - Short-term demand is driven by the continuation of parcel miniaturization trends, with low-price e-commerce platforms contributing significantly to GMV growth [38] - Medium-term growth potential lies in the untapped e-commerce penetration in lower-tier markets, where internet penetration and per capita consumption are still growing [40] - Long-term industry growth will follow consumption trends, potentially aligning with the growth rates of total retail sales and online retail sales [41] Industry Landscape - The mid-to-low-end express delivery sector is shaped by three key factors: policy, supply-demand dynamics, and e-commerce capital [45] - Policy changes, particularly the 2021 express delivery regulations, have played a crucial role in stabilizing the industry and improving profitability [49] - ZTO's competitive advantage stems from its cost and efficiency leadership, supported by scale, investment, and management capabilities [51] - The company's scale advantage is evident in its leading position in daily parcel volume, with over 45 million parcels per day in 2023 [52] - ZTO's strategic investments in infrastructure, including land, buildings, and transportation equipment, have created significant competitive barriers [54][55] Financial Performance and Valuation - ZTO's financial performance demonstrates industry-leading profitability, with a 2022 gross margin of 25.6% and net margin of 18.8% [25] - The company's cash flow position is strong, with 2022 operating cash flow reaching RMB 11.5 billion and cash reserves leading the mid-to-low-end express sector [26] - For 2024-2026, the report forecasts EPS of RMB 12.55, 14.69, and 17.16 per share, respectively [3] - The target price is set at HKD 207.34 for the Hong Kong-listed shares and USD 26.17 for the US-listed shares, based on a 15x PE multiple for 2024 [72] - Compared to domestic peers, ZTO commands a valuation premium due to its leading market position and profitability [72]