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ZTO Express (Cayman) Inc. (NYSE:ZTO)
Q3 2017 Earnings Conference Call
Nov. 20, 2017, 8:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the ZTO third quarter 2017 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal our conference specialist by pressing the star key, followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. Please also note that this event is being recorded. I would now like to turn the conference over to Ms. Sophie Li, Investor Relations Director. Please go ahead.

Sophie Li Investor Relations Director

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

I remind you that this call may contain forward-looking statements made under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1994. Such statements are based on management's current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict, and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties, and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required under law.

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

Meisong Lai -- Chairman and Chief Executive Officer

[Speaking Chinese]

Sophie Li Investor Relations Director

Let me translate for Chairman. Hello, and thank you everyone for joining our call this morning. Our business continues to generate strong growth momentum. Our portfolio grew 39.4% year over year, hitting 1.54 billion parcels. Revenues increased 34.6% year-over-year to RMB 3.14 billion. Our adjusted net income surged during the quarter to RMB 730 million, an increase of 33.5%. We continue to successfully support the healthy and the sustainable growth of our business across all operational metrics, while improving service throughout our entire network. Looking ahead, we will continue to work with our network counters, through our shared success system to improve our overall operating efficiency and income service quality in order to consolidate our leading position in industry and generate value for our shareholders.

With that, I will now turn the call over to James, who will go over our financial results in more detail.

James Guo -- Chief Financial Officer

Thank you, Chairman. Our parcel volume growth during quarter outperformed the 28.4% industry average by 11 percentage points, demonstrating the continued steady increase of our market share when compared to the same period last year. During the third quarter, we continued to make solid progress in enhancing service quality. According to data compiled by the State Post Bureau, ZTO once again received one of the highest scores for customer satisfaction among the major express companies in China during the quarter.

To further improve service quality and protect the interest of customers, we strategically decided to raise our delivery service fees on October 10, 2017. This measure helps to align the interest of ZTO with our network partners, further enhance service quality, protect the interest of our customers, and offset rising transportation, labor, and raw material costs. I am confident that this will further stabilize our network and create favorable conditions for our long-term sustainable growth.

We continue to strengthen our cost advantage by leveraging our economies of scale and implementing cost-cutting initiatives. This will strengthen our operational efficiency and allow us to meet growing market demand, particularly during China's peak shopping season in the fourth quarter.

As of September 30, 2017, we have installed a total of automatic cross-belt sorting equipments and 30 sorting hubs across the country, an increase of 19 lines from the second quarter of 2017. In addition, we added more than 160 high capacity 15 to 17-meter-long trucks to our self-owned fleet during the third quarter, which expands our transportation capacity and increases operational efficiency. This is further supported by an increased adoption rate of digital waybills which improved to 88% from 73% during the same period last year. These measures have not only strengthened our cost advantages, but also further enhance our capacity and efficiency as we head into peak season.

According to data from the State Post Bureau, total parcel volume during China's Singles' Day was 331 million, an increase of 31.5% when compared to the same day of last year. We collected approximately 65.7 million parcels on the Singles' Day, and our year-over-year parcel volume growth rate on Singles' Day this year was over ten percentage points higher than the industry average growth. With that, I would like to begin going through our financials.

First, let me quickly go over a few housekeeping items. We believe year-over-year comparisons are one of the most useful ways to assess our performance. All percentage changes I'm going to give will be on that basis. Our parcel volume during the quarter increased by 39.4% to approximately 1.54 billion. Our number of self-owned trucks increased to over 3,250 as of September 30, 2017, from 3,190 as of June 30, 2017. The use of more self-owned, high capacity trucks has enabled us to enhance transportation efficiency continuously and reduce unit transportation costs as we further increase our economies of scale.

Revenues increased by 33.6% t o 3.1 billion RMB, primarily due to an increase in parcel volume as a result of overall market growth and an increase in the company's market share in terms of parcel volume. Cost of revenues rose to 2.0 billion RMB, an increase of 33.6%, primarily due to increases in line haul transportation, sorting hub operations, and accessories costs, which were partially offset by a decrease in waybill material costs due to the increased use of digital waybills by our end customers, which have lower costs than paper waybills. Going into further detail, line haul transportation costs increased 25.4% to 1,103.9 million RMB. The increase was primarily due to increased cost associated with our self-owned fleet, which includes fuel, tolls, drivers' compensation, depreciation, and maintenance expenses, and outsourced transportation services. As a percentage of revenues, line haul transportation costs accounted for 35.1%, a decrease from 37.4% in the same period last year, mainly due to, one, economies of scale; two, increased purchase -- a use of cost-efficient, higher capacity trucks; and third, increased truck utilization through optimized route planning and increased back haul transportation.

Sorting hub operating costs rose 23.9% to 586.1 million RMB, primarily due to increases in labor costs, as a result of wage and headcount increases; depreciation and amortization costs; and rental and related utilities costs. As a percentage of revenues, sorting hub operating costs accounted for 18.6%, a decrease from 20.1% in the same period the last year, mainly due to economies of scale and improved operational efficiency as a result of increased use of automated sorting equipments in our facilities. Cost of accessories increased 37.2% to 93 million RMB, which was in line with growth in our revenue from the sale of accessories. Other costs increased 180% to 222.3 million RMB, primarily due to an increase in dispatching costs associated with serving enterprise customers, which were partially offset by a decrease in material costs associated with the increased use of digital waybills.

Gross profit rose 33.5% to 1,138 million RMB and gross margin remained unchanged at 36.2% when compared to the same period last year. Total operating expenses increased 66.3% to 193 million RMB. Taking a closer look, we see that SG&A expenses increased by 50.6% to 193.4 million RMB, primarily due to increased share-based compensation expenses, payroll and social welfare, and accrual for annual performance bonuses associated with our cost-cutting initiatives/ Income from operations was 944.7 million RMB, an increase of 28.3% from the same period last year. Foreign currency exchange loss before tax was 27.5 million RMB, primarily arising from the remeasurement of U.S. dollar-denominated bank deposits at the company's balance sheet date due to the depreciation of the U.S. dollar against the Chinese RMB.

In the third quarter, net income rose to 717.2 million RMB, compared with 547.2 million RMB during the same period last year. Basic and diluted earnings per ADS were 1.0 RMB, compared to 0.76 RMB during the same period last year. Adjusted net income surged to 730.7 million RMB, compared to 547.4 million RMB during the same period last year. EBITDA was 1,104 million RMB, a significant increase from 832.9 million RMB during the same period in 2016. Adjusted EBITDA was 1,118 million RMB, an increase from 833.1 million RMB during the same period last year. Net cash provided by operating activities was 1,024 million RMB, compared with 846.9 million RMB during the same period last year. As of September 30, 2017, the company had approximately 10.7 billion RMB in cash and cash equivalents, time deposits, and short-term investments, a decrease of 11.3 billion RMB at the end of last year.

Now, turning to guidance, for the fourth quarter of 2017, we expect revenues to be in the range between 3.9 billion RMB and 4.1 billion RMB, or $586.2 million to $616.2 million, representing a year-over-year growth rate of approximately 22.2% to 28.5%. This represents management's current and preliminary view, which is subject to change.

This concludes our prepared remarks. Before we open the call up for Q&A, I would like to remind everyone please limit yourself to two questions. Operator, we are now ready to begin the Q&A section. Thank you.

Questions and Answers:

Operator

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Baoying Zhai of Credit Suisse. Please go ahead.

Baoying Zhai -- Credit Suisse -- Analyst

[Speaking Chinese]

Sophie Li Investor Relations Director

[Speaking Chinese]

Baoying Zhai -- Credit Suisse -- Analyst

[00:26:05]

James Guo -- Chief Financial Officer

[Speaking Chinese]

Baoying Zhai -- Credit Suisse -- Analyst

[Speaking Chinese]

Sophie Li Investor Relations Director

[Speaking Chinese]

Baoying Zhai -- Credit Suisse -- Analyst

Okay. So, I will translate my questions. So, congratulations to the solid third quarter if we exclude the FX loss this year and the government subsidies of last year. So, my questions would be more focused on the guidance and the future strategy. My first question is regarding the guidance. We can see that the fourth quarter guidance actually is very conservative. I want to know more reasons behind this.

First of all, that we are intentionally lowering the guidance, so give some positive surprise, such as we did in the third quarter. And the second reason is that because of the ASP, because from the third party database we can see that the volume growth of ZTO is very strong -- at least 16 points higher than the industry growth. So, is it because of the ASP? As we can see, we have a new delivery SAY policy, which is starting from the 1st of November to restrict the portion of big parcels. So how much the portion of the big parcels is now and how much its average weight now?

Meisong Lai -- Chairman and Chief Executive Officer

[Speaking Chinese]

James Guo -- Chief Financial Officer

Yeah. Let me do the translation for the Chairman. The Chairman has mentioned about several key points. First, we remain optimistic about our business prospects and the fundamental of the business in Q4. We are confident that our parcel volume growth rate will exceed the industry average growth rate in Q4. And he also mentioned that the number of heavy parcels with an average rate over five kilograms accounted for only a very small portion of our total parcel volumes in Q4. and the average weight of the parcel is continuing to trend down in October and November at a single-digit rate. And lastly, he mentioned, that we have always been very conservative when issuing forward-looking guidance.

Meisong Lai -- Chairman and Chief Executive Officer

[Speaking Chinese]

James Guo -- Chief Financial Officer

Yeah. The Chairman also added that due to our continued strategy of optimizing the parcel structure, currently, the parcels which weigh over 5 kilograms accounted for only a very small portion of a total parcel volume. And for example, he mentioned that the average weight of parcels dropped to about 1.19 kilograms in Q3 from about 1.36 kilograms in the same period last year. And we believe that our new pricing policy is being well implemented by our network partners. And based on the October data, our market share in terms of parcel volume increased amid a slowdown in parcel volume growth in the industry.

Operator

Our next question comes from Edward Xu of Morgan Stanley. Please go ahead.

Edward Xu -- Morgan Stanley -- Analyst

[Speaking Chinese]

Sophie Li Investor Relations Director

[Speaking Chinese]

Meisong Lai -- Chairman and Chief Executive Officer

[Speaking Chinese]

Edward Xu -- Morgan Stanley -- Analyst

[Speaking Chinese]

Meisong Lai -- Chairman and Chief Executive Officer

[Speaking Chinese]

Edward Xu -- Morgan Stanley -- Analyst

Okay. Yeah. The question from Edward Xu from Morgan Stanley is about your ASP, because we see that the ASP decline has been narrow in third quarter on a year-over-year basis versus the first quarter and second quarter, so I think, at least, it's a good sign. And given that you have recently asked for the price hike during the Singles' Day, so what do we expect for fourth quarter for the ASP? And also, what's your view on the 2018 in terms of the ASP changes? Thank you.

Meisong Lai -- Chairman and Chief Executive Officer

[Speaking Chinese]

James Guo -- Chief Financial Officer

Our ASP was about 2.05 RMB during the third quarter, down 4.2% on a year-over-year basis. And actually, the decline was narrowing on a sequential basis. ASP decline was due to a number of different reasons, for example, includes, first, the increased use of digital waybills, and also, the adoption rate of the digital waybills increase actually to 88% in Q3 this year, from about 73% in the same period last year, and that has led to a decrease in digital waybills revenue per parcel. And second, the continued optimization of our parcel structure. This has resulted in the average weight per parcel was dropping on a year-over-year basis. We just mentioned that the average weight of the parcel has dropped from 1.36 kilograms in Q3 last year to about 1.19 kilograms in Q3 this year, reducing our network transit fee per parcel by about 3%. And he also mentioned that the average revenue per parcel in the fourth quarter will be primarily affected by changes in parcel weight, our shipment route, and the usage of digital waybills.

And fee adjustments during the Singles' Day period should positively affect our ASP, but the period where they are applicable is little bit too short to make a substantial impact in Q4. We believe that the overall price per parcel will stabilize and further industry consolidation will take place in 2018. We will maintain the flexibility to adjust the network transit fees and waybill fees as the over price of our network partners gradually stabilizes. And this should effectively balance the interests of ZTO and our network partners. We firmly believe that the stability and the profitability of our network partners are conducive to the long-term sustainable growth of the industry.

Meisong Lai -- Chairman and Chief Executive Officer

[Speaking Chinese]

James Guo -- Chief Financial Officer

Yes. Yeah. So, the Chairman mentioned that the expected ASP in 2018 expected to first stabilize and pick up gradually over time.

Edward Xu -- Morgan Stanley -- Analyst

Okay. Thank you. [Speaking Chinese] My second question is regarding your unit cost. So, we see that the unit cost savings on a year-on-year basis also narrow in third quarter versus the previous quarters. So, can you explain the reason, and tell us what the trend will look like in the next few quarters, and where are the areas that you can keep save your costs? Thank you.

Meisong Lai -- Chairman and Chief Executive Officer

[Speaking Chinese]

James Guo -- Chief Financial Officer

I will do the translation for the Chairman. So, because of the scale of our network and the subsequent network effect, and also our cost-cutting initiatives, our unit costs for the third quarter continued to decrease to about 1.31 RMB per parcel, representing a 4% decrease from 1.36 RMB per parcel during the same period last year. We believe that China's express delivery industry still has significant growth potential in the coming years. As the scale of our business continues to grow and our cost cutting initiative further takes hold, our unit cost still has much room to fall over next few years.

In terms of transportation cost controls, we have adopted a number of measures, which are gradually paying off. First, we have implemented cost control measures on third party transportation costs. For example, we have increased the number of self-owned fleet to replace our third party logistics vehicles; and second, we have also optimized our transportation routes to reduce transportation distance, fuel consumptions, and secondary transport fleet. We will continue to focus on replacing our small capacity vehicles with high capacity 15 to 17-meter long trailer trucks. As I mentioned earlier, one of the benefits of our self-constructed sorting hub is that we can design and build sorting hubs to allow for bigger trucks to ship parcels between hubs according to our own shipment schedules.

With this mind, we will continue to invest in building or expanding our own sorting hubs; and third, we also improve the performance appraisals of our sorting personnel, and we will continue to increase investments in automated sorting equipments, especially automated belt conveyors. We recently invested in dynamic weighing stations, which can accurately weigh parcels as they move through the sorting process, and these investments have significantly increased our sorting efficiency and reduced our labor costs.

With respect to the impact of unit cost decline on price, price is essentially determined by the market, and price changes depend on the relationship between market supply and demand. And this includes the matching of our network capacity with the market demands. As we mentioned earlier, we expect prices to stabilize next year and then gradually pick up over time, but there is still room for cost reduction, which will generate more profits for our entire network given a constant price, if there is no change in the price.

Operator

Our next question comes from Vivian Tao of Citibank. Please go ahead.

Vivian Tao -- Citibank -- Analyst

Thank you. [Speaking Chinese] My first question is on the market share. If we look at ZTO's quarterly market share, it was at 15.5% in first quarter, and 15.3% in second quarter, and then 15.2% in third quarter, so sequentially, it's slightly down in the past few quarters. So, just want to see what's management view on this and also what's management guidance on ZTO's market share in fourth quarter and also in 2018? In addition to that, India made out announcement today, the company mentioned ZTO hand out 55.7 million parcels on Singles' Day versus in the States of 331 million parcels, that is tied to 19.8% market share. So, I also want to see what's management opinion on this particular market share, and also if there is any implication for the Singles' Days volume for the next year?

Meisong Lai -- Chairman and Chief Executive Officer

[Speaking Chinese]

James Guo -- Chief Financial Officer

Okay. I will translate the Chairman's answers to your questions, Vivian. First, he mentioned that the market share in terms of parcel volume in Q3 cannot be compared directly on a sequential basis. It is more meaningful to compare market share on a year-over-year basis. For example, he mentioned that our market share in third quarter 2016 is only about 14% -- a little bit over 14% -- but we increased our market share to over 15.2% in this quarter. So, that's a very significant increase in market share. And we remain confident that our expected growth -- parcel volume growth will continue to well above industry growth.

And second, he mentioned that according to the data from the China State Post Bureau, 331 million parcels were collected by the Chinese postal and express delivery companies on Singles' Day, up by about 31.5% year-over-year. And our parcel volume on Singles' Day was about 65.7 million, outperforming the industry average growth by more than ten percentage points. We believe that our market share in terms of parcel volume also expanded on a year-over-year basis on Singles' Day. Maintaining high quality services during peak season requires a stable network, sufficient capacity, solid delivery capabilities, and also strong execution and operational efficiency. We believe we have more of a competitive advantage in these areas than our peers.

Vivian Tao -- Citibank -- Analyst

[Speaking Chinese] My second question is on the cost side. In the announcement, there is an item, the other cost, which is actually mainly on the depreciation costs associated for the enterprise customers that increased by around 180%. Actually that's not increase. I just want to find out what's the reason behind that. Also, the associated revenue increase because of that cost increase?

James Guo -- Chief Financial Officer

Okay. To answer your question -- let me answer your question, Vivian. The revenue from our enterprise customers also increased significantly in Q3 this year. It's up by over 100% on a year-over-year basis in revenue. And now, KA customers -- I mean, key account customers -- contributed to about 10% of our total revenue in Q3 this year.

Vivian Tao -- Citibank -- Analyst

Okay. And do you have number for last year, James? The third quarter 2016? So it's 10% for this year, right?

James Guo -- Chief Financial Officer

Yes. Last year, the revenue from key account customers only accounted for less than 6% of our total revenue.

Vivian Tao -- Citibank -- Analyst

Okay, got it. Thanks.

Operator

Our next question comes from Xin Yang of CICC. Please go ahead.

Xin Yang -- CICC -- Analyst

Okay. [Speaking Chinese]

Sophie Li Investor Relations Director

[Speaking Chinese]

Xin Yang -- CICC -- Analyst

[Speaking Chinese] So I will do the translation myself. My first question is, we saw that this year actually was up the delivery service fee as well as the charge for the transit fee for the line haul costs and sorting costs. So, did other players in the market also followed the same kind of strategy? And what is the market share change after we adopted this kind of strategy? And do you think this should be the turning point of the whole market in terms of the price? Thank you.

Meisong Lai -- Chairman and Chief Executive Officer

[Speaking Chinese]

James Guo -- Chief Financial Officer

Okay. Let me translate for the Chairman. The Chairman mentioned that the new pricing policy was well implemented during the Singles' Day period. And the purpose of the new pricing policy was meant to improve service quality and protect the interest of the customers, and also ensure the -- how overall healthiness of the network partners within our ZTO networks. And he said he makes no comments on the behavior of our peers with respect to whether they follow suit after we raise the price during the Singles' Day period. The Chairman believes that our market share in terms of parcel volume continues to expand during the Singles' Day periods, and he believe our expected growth during that period was at least over the percentage points above the industry average.

Xin Yang -- CICC -- Analyst

And the last one is, do you think this is a turning point of the whole market price?

James Guo -- Chief Financial Officer

Oh, yeah. And he says the Chinese express delivery industry is now the most cost effective in the world. And I believe that the price should stabilize in the coming year, and then gradually picks up over time, and that indicates a turning point in the industry.

Xin Yang -- CICC -- Analyst

Okay. [Speaking Chinese] So, I will do the translation myself. What is your expected view for the diversified side? We saw that SF has already entered into the inter-city market, and also Whitehill has acquired international -- to do international e-commerce parcel. So, what is your strategy for this kind of business?

Meisong Lai -- Chairman and Chief Executive Officer

[Speaking Chinese]

James Guo -- Chief Financial Officer

The Chairman mentioned that business diversification is the new direction in the express delivery industry in China. And we already put in place our plans, as we are committed to building out our ecosystem in several areas, including the [inaudible] truckload business, cloud warehousing solutions, cross-border e-commerce delivery accessory. We will provide an update to the shareholders once our plans are confirmed and we are ready to disclose those plans.

Xin Yang -- CICC -- Analyst

[Speaking Chinese]

Operator

And our next question is a follow-up from Baoying Zhai of Credit Suisse. Please go ahead.

Baoying Zhai -- Credit Suisse -- Analyst

[Speaking Chinese] First of all, so a follow-up with the Double 11 situation. So, how about implementation of the price hike especially for the franchisees. At the headquarter, do you know how many franchisees actually did the price hike? And according to my channel track, actually found that for some big franchisees in Shanghai, they said they wouldn't actually adjust down their prices, even post-Double 11 at the headquarters, if you have know about this? Thanks.

Meisong Lai -- Chairman and Chief Executive Officer

[Speaking Chinese]

James Guo -- Chief Financial Officer

The purpose of our price adjustments was meant to further improve service quality, protect the interest of our customers, and allow for the healthy and sustainable developments of our network partners. With that in mind, our pricing policy during the fourth quarter includes, one, increase in the last mile delivery fees in some regions; and two, increase in last mile delivery fees of parcels with a weight above three kilograms; and three, a seasonal increase in network transit fees based on the parcel weight and locations.

After the announcement of the increase in our delivery fees, our network partners adjusted their fees according to specific market conditions. And the ultimate purpose of the fee increase was to better serve our customers and protect their interest. So far, I believe the new policy has been well received and executed by our network partners. The increase in network transit fee is only applicable during China's peak shopping season, and will last until next year's Spring Festival. And the network transit fees adjustment is only applicable during the period from November the 11th to November 25th. We will review the policy afterwards based on market conditions before we make any further adjustments. Many of our network partners, they continue to maintain a stable price after the Singles' Day periods.

Baoying Zhai -- Credit Suisse -- Analyst

[Speaking Chinese] Okay, I will translate my questions. So, my second question is regarding the capex plan. So, James, could you please share about the capex plan so far, and how is the full- year guidance this year, and how the capex for next year? Thank you.

James Guo -- Chief Financial Officer

During the first nine months of 2017, our total capex was around two billion RMB, including about 1.2 billion spending for land acquisition and sorting hub construction, and another 300 million RMB spending for the purchase of self-owned vehicles, and another 400 million RMB for the acquisition of sorting hub facilities, including automated sorting equipments. We expect to spend about a billion RMB in the fourth quarter of 2017. This is mostly related to the purchase of land and the construction of sorting hubs. And the capex for 2018 is expected to be no less than that for this year. As we believe it is critical --

Baoying Zhai -- Credit Suisse -- Analyst

[Speaking Chinese]

James Guo -- Chief Financial Officer

Yeah. So, we believe it is critical to continue to expand our infrastructure capacity so that we have the capability to deal with a spike in market demands in the coming years.

Baoying Zhai -- Credit Suisse -- Analyst

[Speaking Chinese]

James Guo -- Chief Financial Officer

We don't have a breakdown at this point in time. We will provide the details later on.

Baoying Zhai -- Credit Suisse -- Analyst

Okay, sure. Thank you.

Operator

Our next question comes from Nicky Ge of China Renaissance. Please go ahead.

Nicky Ge -- China Renaissance -- Analyst

[Speaking Chinese] China recently announced a very aggressive expansion plan, and we wonder how the management would comment on that? How would China's expansion impact our ZTO and other express players?

Meisong Lai -- Chairman and Chief Executive Officer

[Speaking Chinese]

James Guo -- Chief Financial Officer

The Chairman says that it is not surprising that Alibaba has increased its investment in China because they have become crucial to Alibaba's business. We are a long-term strategic partner of Alibaba, and both ZTO and China complement each other. If Alibaba's business goes well, we will certainly have more business from Alibaba. Similarly, if we provide excellent services on Alibaba's platform, we will have stronger appeal to merchants and consumers.

Nicky Ge -- China Renaissance -- Analyst

 [Speaking Chinese] What are our target automated sorting lines for the yearend and for 2018?

Meisong Lai -- Chairman and Chief Executive Officer

[Speaking Chinese]

James Guo -- Chief Financial Officer

As of the end of the third quarter, we installed and operated a total of 41 automated sorting equipments in our sorting hubs, an increase of 19 lines from the previous quarters. Actually, before the Singles' Day period, we already had 52 automated sorting equipments in store and put into operations in our sorting hubs. We plan to install and put into operation of a total of about 60 automated sorting equipments by the end of this year. And this target, it's actually ten lines more than what we expected to do at the beginning of the year.

Nicky Ge -- China Renaissance -- Analyst

[Speaking Chinese]

Meisong Lai -- Chairman and Chief Executive Officer

[Speaking Chinese]

Operator

This concludes our question and answer session. I would like to turn the conference back over to Ms. Sophie Li for any closing remarks.

Sophie Li Investor Relations Director

Thank you, Operator. In closing, on behalf of the entire ZTO management team, we'd like to thank you for your interest and participation in today's call. If you require any further information or have any interest in visiting us in China, please let us know. Thank you for joining us today. This concludes the call. Thanks.

James Guo -- Chief Financial Officer

Thank you.

Meisong Lai -- Chairman and Chief Executive Officer

Thank you. [Speaking Chinese]

Operator

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

Duration: 60 minutes

Call participants:

Sophie Li -- Investor Relations Director

Meisong Lai -- Chairman and Chief Executive Officer

James Guo -- Chief Financial Officer

Baoying Zhai -- Credit Suisse -- Analyst

Edward Xu -- Morgan Stanley -- Analyst

Vivian Tao -- Citibank -- Analyst

Xin Yang -- CICC -- Analyst

Nicky Ge -- China Renaissance -- Analyst

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