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ZTO Express (NYSE:ZTO)
Q3 2020 Earnings Call
Nov 19, 2020, 8:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the ZTO Express, Third Quarter Financial Results Conference Call. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. I would now like to turn the conference over to Sophie Li. Please go ahead.

Sophie Li -- Director, Investor Relations

Thank you, Operator.

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

I'll remind you that this call may contain forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the Company's control, which may cause the Company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding this and other risks, uncertainties and factors is included in the Company's filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law.

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

Meisong Lai -- Founder, Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech].

Thank you. Thank you, Lai Song. Allow me to translate for you. Hello, everyone, and thank you for joining us today. In the third quarter of 2020, China express delivery industry grew parcel volume by 37.8% to achieve 22.3 billion parcels year-over-year. ZTO achieved 4.6 billion parcel volume in the third quarter and expanded our volume market share by 1.9 percentage points to achieve 20.8%. 51.2% growth rate of the quarterly record set in the third quarter of 2020. While accelerating scale expansion, we continue to strive and attain a high level of service quality and customer satisfaction.

As fierce competition persisted and causing a landslide of peer-level net profit, our RMB1.21 billion adjusted net profit with an 8.2% year-over-year decline was relatively less abrasive. In the third quarter of 2020, we remained focused on our key strategy to accelerate volume growth, broaden our lead and expand our market [Technical Issues]. First of all, we continue to increase investment in infrastructure development.

Cumulative capital expenditure for the three quarters reached RMB6.2 billion, which surpassed the total amount for the whole year of 2019. We acquired larger tracts of land and secured scarce resources to design and develop smart [Technical Issues]. We have increased the proportion of the sales owned [Technical Issues] of our fleet, further optimizing structural transportation capacity, particularly the engine to trailer ratio. By the end of the third quarter, high-capacity trucks made up more than 80% of 9,250 self-owned vehicles in operation.

And the ratio of engine to trailer increased to 1 to 1.3. We have also further rationalized the [Technical Issues] logistics. In the third quarter, total core express delivery cost per parcel decreased by 6.7% as the combined unit transportation and sorting of [Technical Issues]. For construction of new and upgrade of old sorting hubs and facilities, we have raised the level of automation and digitization to enable data-driven smart sortation that are seamlessly integrated with transportation, ensuring further improvements of the capacity and efficiency of our platform.

Secondly, we continue to delay and upgrade our partner network. At the end of the third quarter, we have over 5,150 direct network partners and nearly 30,000 outlets, covering approximately 99% of [Technical Issues] as well as 92% of villages across segments. Well-coordinated supplies and local policies are supportive of our network partners safe [Technical Issues] and profit pressures. We've made [Technical Issues] of our strong cash reserve to ease their liquidity pressure and provide for capital spending. While we helped to ease the pain experienced by our network partners, we clearly stated markets and we excluded [Technical Issues] valuation to identify and eliminate underperforming [Technical Issues] in order to optimize overall network quality.

Such persistent efforts were also a matchup of pickup and delivery and the [Technical Issues] and ensure the growth of parcel volume is improving service quality and operational efficiency across our entire network. Certainly, we have started to establish scale in our last mile footprint. ZTO and Cainiao collaboratively accelerated development of last mile post, and we actively implemented lock boxes as well as various express plus terminal resources.

By the end of third quarter, total number of our last mile posts exceeds 65,000, and approximately 46% of last-mile delivery utilized measures alternative to home delivery. We have laid a critical foundation for managing last mile posts and profitability in order to usher in an average daily volume of 100 million and more in the future.

On September 29th, 2020, ZTO successfully completed secondary listing in Hong Kong. We took the opportunity to reflect on the past and look forward to the future. We firmly believe that express delivery industry's value contribution to society has just begun, and the meaningful payback to express delivery industry has not yet arrived. The stock code of ZTO on the Hong Kong Stock Exchange is 2057, in which 20 represents the year of 2020 when a healthy recovery of China's economy is driving the accelerated growth of China's express delivery industry. And 57 is the humble beginning number of parcel on the first day of our business.

The parts from this figures marked the beginning of our journey ahead, where ZTO is to enhance its competitive edge, raise the bar, being our best at present and innovate for the future. On this past Singles' Day shopping dollar, our parcel volume was close to 130 million. The cumulative number of orders from November 1st to the 11th exceeded 820 million, and the cumulative parcel volume exceeded 760 million.

We have been witnessing continuous innovation in e-commerce marketing practices and the creative format. Contrasted to the ever-sold fragmented e-commerce spending, the express delivery industry has accelerated consolidation and polarization, relying on the maximizing scale and efficiency. Express delivery can serve almost everyone, shortening the distance between production and consumption, plus end-users.

With increasing build-out of key resources and ability to gain access and integrate and utilize even more, enterprises like ZTO will be able to develop comprehensive logistics service capabilities and become increasingly eco-advantaged. Now let's turn to our CFO, Ms. Yan, to take us through our financials.

Huiping Yan -- Chief Financial Officer

Thank you, Chairman, and thank you, Sophie. Hello to everyone on the call.

As I go through our financials, please note that unless specifically mentioned, all numbers quoted are in RMB, related to third quarter of 2020 and percentage changes refer to year-over-year comparisons for the quarter. Detailed analysis of our financial performance, unit economics and cash flow are posted on our website, and I'll go through some of the key highlights here.

Driven by a steady economic recovery, China express delivery industry maintained its strong growth momentum from previous quarter. ZTO grew parcel volume by 51.2% to 4.6 billion in the third quarter. Our market share further expanded by 1.9 percentage points to 20.8%. Total revenue increased by 26.1% to RMB6.6 billion. ASP for the core express delivery business declined by 18.4% or RMB0.30, which was relatively moderate compared with our industry view.

The RMB0.30 price decline included RMB0.22 for incentives or subsidies to support our network partners to grow market share while maintaining confidence and keep the network stable. RMB0.03 decline came from increased use of lower-priced, single-sheet digital waybills, and RMB0.05 decline was associated with parcel weight drop. Average weight per parcel declined 7% to 1.04 kilo. Total cost of revenue increased by 43% to RMB5.2 billion. For core express delivery business, unit cost of revenue decreased by 6.7% or RMB0.07.

Unit transportation costs declined by 9.2% or RMB0.05 to RMB0.53, primarily due to increased use of self-owned, high-capacity trailer trucks. Units sorting costs declined 8.5% or RMB0.03 to RMB0.29 as a result of increased level of automation and improved economies of scale. Gross profit decreased by 12.9% to RMB1.4 billion, and gross profit margin decreased 9.4 points to 21% as a combined result of volume increase, unit price decline and improved cost productivity, as previously described.

SG&A increased by 28.5% to RMB374 million, mainly due to increased head count and average salaries and higher depreciation and amortization expenses, driven by increased capex investment. SG&A cost as a percentage of revenue remained low at 5.6%, where our corporate cost structure remained stable. Income from operations, excluding SBC, decreased by 17.2%. And associated margin decline was 9.2 percentage points, which is narrower than the gross margin decline because of positive SG&A leverage and increased other operating income, namely VAT super deduction and government subsidies and tax rebates.

Operating cash flow was RMB1.5 billion for the third quarter, increased 4.4% from RMB1.4 billion last year. Capex increased by 29.1% to RMB2.2 billion for this quarter as we expanded our investment in infrastructure and also facility construction and upgrade.

Looking for the year, we are likely to exceed our RMB6 billion to RMB8 billion total year capex plan to reach RMB10 billion. We are able to secure larger tracts of land this quarter, and those are also in the pipeline provided such estimate. The negative income tax of RMB27.8 million resulted from a corporate income tax refund of RMB200.7 million that was received in this quarter by our wholly owned subsidiary, Shanghai Zhongtongji Network, which was recognized as a key software enterprise, hence qualified for a preferential tax rate of 10% for tax year 2019.

Now turning to business outlook. Considering the current market condition and our prioritized goal to achieve accelerated market share gains while still managed to maintain our target level of earnings, the Company maintains its current annual guidance. Parcel volume is expected to be in the range of 16.2 billion to 17 billion, representing a 33.7% to 40.3% increase year-over-year. And adjusted net income is expected to be in the range of RMB4.8 billion to RMB5.2 billion, representing a 1.7% to 9.3% decrease year-over-year. These estimates represent management's current view of the market condition and are preliminary and also subject to change.

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

Questions and Answers:

Operator

We'll now begin the question-and-answer session. [Operator instructions]. And the first question comes from Ronald Keung of Goldman Sachs. Please go ahead.

Ronald Keung -- Goldman Sachs -- Analyst

[Foreign Speech]. Thank you, Meisong, Huiping and Sophie. So two questions, just first, just want to ask about the competitive landscape with these new entrants, Yuantong, J&T. Just how do we see the outlook, particularly for 2021, given this year is kind of already nearly concluding? For 2021, how do we see ASPs and how profit per parcel trends may look heading into the next year?

And then my second question would be on community group purchase. These are seemingly some new models that will be -- that's growing for groceries and for some of the e-commerce goods. So given that we have 65,000 last-mile posts, do we see this as an opportunity for us, for our franchisees in being a self-pickup location? And will this kind of group purchase model have any impact on what we see as express delivery growth outlook for the next few years?

Thank you.

Meisong Lai -- Founder, Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech]. Okay. Thank you. Thank you for your question. Let me translate for Chairman Lai. First question relating to the competitive environment. We have commented that it is an overall trend that is inevitable. We have seen the world, including developed countries such as U.S. or Japan. Before the market shares are stabilized, the process of competition is not avoidable. We have observed, in China, the express delivery industry has been, in the past, and still continuing to consolidate. And at the same time, the polarization is also taking place with the bigger ones getting bigger, and the smaller ones are slow in growing their scale and volume.

We think that when the market are no longer equally shared as of recent, what we've seen in China market, there will be one or two players expanding their market share to 30%, or even 40% or greater. And when that comes, the price will stabilize. Competition will no longer be driven by price because we still firmly believe express businesses depend largely on its capacity and capability.

As the market share becomes more clearly stated or clearly differentiated, price will reach its turning point. Chinese market has great potential. We have witnessed RMB10 billion annual growth in the past and also expected greater expansion in this year. As market stabilizes, when the growth is still there, profit will naturally return. So it is a natural progress that we are experiencing.

The second question regarding group -- community group purchase. First of all, the nature of such new form of commerce is, in essence, going from off-line to online. It is additive to express delivery industry, so it is very positive. And then also, if you consider express delivery industries, it has the vast network and resources throughout the country. It could be fully utilized, and it is, indeed, as we observed, what's taking place in the community group purchases. There is a collaboration or synergy because of the utilization of some of the idle resources by our network partners because, as you indicated, their last-mile presence.

So these two forces drawing together, it not only helped the community group purchase activity to reduce their cost and at the same time, allowed our network partners to utilize their resources to participate and to gain as well in the whole process. So we think this is, indeed, as you said, a collaborative relationship.

Ronald Keung -- Goldman Sachs -- Analyst

Thanks.

Operator

The next question comes from Baoying Zhai of Citi. Please go ahead.

Baoying Zhai -- Citi -- Analyst

[Foreign Speech]. So my first question is regarding transportation costs. Although this is quite in line with my own expectations, compared with the competitors' transportation costs during the same period, it looks a little bit weird.

So I want to break down more on the transportation cost. Compared with second quarter, we know that toll has been fully recovered. What's the impact per parcel compared with second quarter in terms of the toll recovery? And what's the average load rate on the second -- in the third quarter of the fleet? And what's the average weight of the parcels and average mileage of the parcels?

And then my second question is a follow-up question on the competition. Because if we do the simple calculation, we can see our two major competitors already made a few cents unit profit, and the number four and the number five players are already loss-making. And as Lai Song mentioned previously, we will see the inflection point soon, but how long it will be?

And what could be the single trigger event? It -- is it the older players' loss-making or we have to surpass a market share target first?

Sophie Li -- Director, Investor Relations

Thank you, Baoying, for your question. I'll address your first point, and then Chairman will address the second. Regarding the transportation cost, I think the second quarter and the third quarter comparative because the ETC fee benefit that was there for the second quarter, and the third quarter, it's no longer there. And then also, there is a bi-axle fee collection for the trucks that are running on the freeway on the highway. That is indeed, on a unit cost basis, increased for the whole industry.

Now looking at our numbers, I should comment that our level of cost is normal based on our normal volume. And for the increased number of vehicles that we have on the road, there is an increased depreciation. That could be one of the differences compared to our peers. And then secondly, what is indeed included in the transportation cost, each competitive companies are not necessarily exactly the same.

So we believe, first of all, as I stated, our level of cost is normal against the level of volume that we reported. And then two, there are potentially cost structure differences, and that caused the difference.

Meisong Lai -- Founder, Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech]. Regarding the -- when the turning point of the price would come, the Chairman commented that it is still driven by the basic rule of supply and demand relationship. For express delivery industry, the key, particularly for the model that we are looking at, the network partner model, you can look at those into two aspects. One is the transit capability. The other is pickup and the delivery capability. So capacity, quality of services is all the key -- are all the key factors determining where the price would go. And when you do have huge capacity, the volume is also increasing from a demand side, then everyone -- in order to fill the capacity, the price will decline, but yet there is going to be a point where your capacity advantage rules over everyone else's.

And particularly so when you -- if you refer to the comment that we made earlier in our prepared remarks, the network partners' capabilities is a critical element because they have to be matched up and in sync with the transit platform. We, at ZTO have on one hand, consistently investing in our own infrastructure. And at the same time now, as volume continued to increase, we saw the need by our network partners and also some of the partners proactively expressed their desire and the need to expand their own capabilities for pickup and delivery because it does also require some level of sorting.

So we are able to use our financial resources to help to support them. Our network, healthy level of our network and the network partners' confidence level are relatively more stable and sound. So if I may supplement to what Chairman has made, if you were truly looking for a signal or signifying events, perhaps we should watch closely and look closely to how our network partners are doing. Are they investing? Are they expanding? With the backdrop of volume increases, if they are also investing, they are expanding and their synchronized capabilities are there to support the entire brand, then cost scale advantage will further be harvested, and quality of services will be maintained, and that brand will continue to thrive.

And the price will no longer -- yes, the price will no longer be the tool, but the capacity will be the determining factor of bringing in more volume. And hence, the price will be determined by the taker, and the price will resume.

Baoying Zhai -- Citi -- Analyst

[Foreign Speech].

Sophie Li -- Director, Investor Relations

The impact of the ETC from the second quarter and the -- to third quarter differences is about RMB0.05. And some of the other details -- because we do not -- we do have these analysis, but we do not disclose this for competitive purposes.

Baoying Zhai -- Citi -- Analyst

[Foreign Speech]. Sorry, I have a follow-up question on the tax rate. And -- because I saw in the third quarter, Zhongtongji got a favorable tax rate at 10%. But if based on my own calculation, I think the tax reform is not completed yet. So how long it will continue? And for the next few -- for this year and for next few years, if Zhongtongji still enjoy the 10% tax rate.

Huiping Yan -- Chief Financial Officer

Yeah, thank you for your question. I think I need to clarify, the key software enterprise and the new high-technology enterprise are two different distinctive certification. Those are -- the one is for three years, the high new technology enterprise for three years, and then the one that we received for this quarter is related to only one year of certification for Zhongtongji for the year 2019.

It is the entire amount for the differential of 5%. While we have also obtained another three years of certification for being the high new enterprise, and so we have just started a new cycle for the three year certification.

Operator

The next question comes from Juan Zhu [Phonetic] of KeyTrust [Phonetic] Securities.

Juan Zhu -- KeyTrust Securities -- Analyst

[Foreign Speech]. My first question is about capacity. This year, our capital expenditure increased a lot. So I would like to know what is our optimal economical capacity in the end of this year, and how much will it increase in the end of next year? And my second question is about our price strategy. As we see this year's price competition is quite intense, and we have some better financial results than our competitors as well as our market share growth. So how about next year's strategy? Will we be more aggressive on price and increase the speed of market share? Okay. That's my question. Thank you.

Huiping Yan -- Chief Financial Officer

Thank you, Ms. Juan for your question. Regarding the capacity, first of all, the statistics, this year, we are looking at an optimum level of production daily of [Indecipherable]. And next year, we are expecting to be somewhere around RMB80 million to RMB85 million. The investment, first of all, is, yes, indeed, for our express core businesses. We are investing in facilities, automation and also upgrade from some of our existing sorting centers for their automation and also the scale.

And also, the capex is related to our investment for developing comprehensive service logistic park, for example. Some of the land that we are purchasing and designing now are not only for express delivery itself. We are looking to build a facility that is catering for multi-purpose logistic needs.

For example, we do have the LTL businesses, and we also are building resources for the warehouse -- the in-warehouse processing and also delivery. We are strategically placing the resources needed or assets needed for co-chain operations. The -- also -- all these comprehensive logistic capability require larger tracts of land. And its advantage is for them to be housed under same roof, hence, better cost efficiency as well as timeliness.

We are able to provide differentiated, time-definite products at a lower cost. The second question relating to the profit. Now the competition is there. Yes, we are further accelerate -- we have further accelerated this year. We do know that as the market share becoming more and more concentrated and also polarization continue to take place, our capacity will be driving for even more market share gain.

The profit pressure is indeed experienced by everybody. And we think a prolonged, drawn-out battle or drawn-out price war is not beneficial to anyone, especially when the price competition at certain market is not sustainable because of the price sensitivity by the merchants. So we do like to accelerate, and that's also what we've done in this year.

We accelerated, maintained a level of profitability, reasonably speaking, relative to the peers. And into next year, we will also, on one hand, watch closely of the market development, including continued growth, the level of growth of the total economy and the package incoming volume. And we will also look at what the competitors are doing. Some of them have reached the level of minimum potential that they could bear. We are aware of that.

So with that in mind, we do intend to continue to accelerate to finish this process or advance this process as much as we individually can.

Juan Zhu -- KeyTrust Securities -- Analyst

[Foreign Speech].

Sophie Li -- Director, Investor Relations

[Foreign Speech]

Operator

The next question comes from Lin Chen of JPMorgan. Please go ahead.

Lin Chen -- JPMorgan -- Analyst

[Foreign Speech]. My question is regarding the Company strategy. So if we look at the sequential trend in third quarter, the price did show some recovery, but at the same time, Company's market share declined slightly from the second quarter. So does it mean that the strategy has switched from market share-focused to profitability-focused?

And going to next year, as the competition will increase, what will be Company's strategy of how to balance between the market share and the profitability? Thank you.

Huiping Yan -- Chief Financial Officer

Our strategy has not changed, and the third quarter results are consistent with our strategy. Indeed, if you look at just by that quarter, the percentage of market share is lower than the second quarter. But you need to look at the seasonal differences, if you look at the trend from last year, by quarter, market share is fluctuated.

If you look at the total year-to-date, our market share has consistently expanding. And indeed, this year, we have expanded more than last -- this quarter, we have expanded more than last quarter, 1.9 points versus 1.6 points last quarter, if I remember correctly. And so again, our strategy has not changed. We are historically maintaining the balance between the three: the volume, the quality of services and also profitability.

This year, we are focusing more of prioritizing the volume gain, the market share, and we accelerated the growth in order to further widen the gap of our lead. And going forward into next year, it will be the same, if not more focused on volume growth because, again, as the previous question that we answered, we do like to accelerate and take opportunity to bring forward the turning point.

Lin Chen -- JPMorgan -- Analyst

[Foreign Speech].

Operator

The next question comes from Parash Jain of HSBC Hong Kong. Please go ahead.

Parash Jain -- HSBC Hong Kong -- Analyst

Yeah. Thank you, operator and thank you management for this opportunity. I have two questions. First, you have explained pretty comprehensively about the competitive landscape. But I just want to understand that how much pain can your -- can other Tongda player endure before the price discipline emerges? So when I look at your EBIT per parcel this quarter versus the same quarter last year, it seems like if the same intensity or the same pressure continues, very soon, majority of your peers will start to bleed at the cash flow level.

Do you think that, that could be an inflection point? Or you think that given the balance sheet or perhaps the support, they can continue to compete on price even after losing money? And my second question is your account receivables have seen a jump in third quarter versus your historical average.

I understand partly it's a reflection of higher revenue, but is there anything more to that in terms of extending longer credit to your customers who are facing the pain? Do we see a risk of any write-off on that? Thank you.

Huiping Yan -- Chief Financial Officer

Thank you for your question. First question, the competitive environment, yes, indeed, if you look at the overall performance, I think everybody else has already announced their numbers. So it's public. You could do the comparison. For us, we said that our decline is more moderate, not only on the ASP line, but also on the profit line. And now you do need to look at the operating profit because there are some one-off items that we do enjoy for the quarter.

So if you look at the gross margin minus the SG&A, that is a better indication of how we are performing. Now simply from an ASP standpoint, you can see that we have not necessarily having to dish out more of the subsidies than everybody else. We are 18.4%, which is at the low end of the range. I think the highest range could get into -- in the 30%, if more.

So it is a good indication that we do not need to give out more subsidies to our network partners because everybody else are really suffering. And indeed, if you look at the trend, look at what's going to -- based from a cash perspective, yes, there is really toward the end, if we may.

The lower limit is almost there for the industry can bear, right, because we are all here for profit. And particularly so given the network partner model versus a vertical model where you could make sure all the last mile or the end pickup and delivery are protected by our -- by the headquarter, it's not the same. It is where you maintain your level of profitability; at the same time, maximize what you could do and minimize what you don't need to do, right, to support the network for you to continue to grow. So it is all a relative term. All the others indeed are taking on a lot burden. So yes, I agree with you.

This is also one other aspect to look at. Similar to what I commented earlier, if the network partners, given the incoming volume are investing for the future, that means they are more confident, and they will remain stable as opposed to worrying about what's going to take place and perhaps to leave the business or defect to other brand, for example, that is what we will also closely watch in the marketplace. And then across receivables [Speech Overlap] I'm sorry, go ahead.

Parash Jain -- HSBC Hong Kong -- Analyst

Yes, please. No, just on that question before we move to account receivable. Is it fair to understand, therefore, that it's not necessarily 30% or 40% market share, but price discipline may emerge before you or the top player may reach that level, given the amount of pain that sector overall is witnessing? Is it a fair comment?

Sophie Li -- Director, Investor Relations

Sure. I think this is my view. There are various aspects or perspectives that we are looking at, if I may just put them all together. One is the market share gain, the gap between us and the second or the third competitor, that's one. And then two, our capacity, the capacity-driven cost advantage, it's going to be stated in the numbers, real numbers, I mean.

And then thirdly, look at our network partners, right? The network partners, if they are stable, if the network has not gone busted meaning some of the posts, if you see [Indecipherable] are nonoperating or ceased operations, then the problem is huge. It's because it's a network partner model, right? You have a limited level of control.

So the 30% to 40% is what we believe. It was certainly -- most certainly, it will provide a stable environment. Now what we are targeting is by year 2022 to reach 25% of the market share, I think that is already a very reasonable assumption to be drawn is at that time, the site just started to become stable. And then from that point on, will become gradually increasing, given normal [Technical Issues] type of improvement.

So 30% or 40% is what we anticipate as the end -- most likely the end scenario where, on one hand, the Chinese market is huge. One or two cannot absorb entirely. So we still have maybe two or three. And so in that sense, we think 30% or 40% by one player is reasonable.

Parash Jain -- HSBC Hong Kong -- Analyst

Okay, thank you.

Operator

This concludes our question-and-answer session.

Sophie Li -- Director, Investor Relations

And then for the second question, accounts receivable, in this quarter, we have our KA -- account KA businesses increased near 100%. Our KA customers do enjoy a term for paying their fee. So about 70% or so of the accounts receivable do relate to our KA customers. And then also, we do have a level of our network partners. Some of them do receive also a term. Those are limited, selected network partners by meeting certain requirements. So those are still based on the volume, reasonable level of receivables.

Parash Jain -- HSBC Hong Kong -- Analyst

Okay, thank you so much.

Sophie Li -- Director, Investor Relations

Thank you.

Operator

[Operator Closing Remarks].

Duration: 65 minutes

Call participants:

Sophie Li -- Director, Investor Relations

Meisong Lai -- Founder, Chairman of the Board of Directors and Chief Executive Officer

Huiping Yan -- Chief Financial Officer

Ronald Keung -- Goldman Sachs -- Analyst

Baoying Zhai -- Citi -- Analyst

Juan Zhu -- KeyTrust Securities -- Analyst

Lin Chen -- JPMorgan -- Analyst

Parash Jain -- HSBC Hong Kong -- Analyst

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