Shares in ZTO, an express delivery company that works with Alibaba, fell 15 per cent on their first day of New York trading, after the group raised $1.4bn in the biggest US IPO this year.
In spite of pricing ahead of expectations — an indication of demand — ZTO’s shares fell in their debut on Thursday on the New York Stock Exchange. They closed down 15 per cent at $16.57, giving the Shanghai-based company a market value of $12bn.
James Guo, ZTO’s chief financial officer, said that if the company continued to grow, “the stock price can take care of itself”.
The group priced its 72.1m shares at $19.50 each, above its previously indicated range of $16.50 to $18.50. The deal also clocked in as the biggest US-listed IPO in the year to date, according to Dealogic.
ZTO’s listing was the largest US IPO by a Chinese company in two years, and offered investors the chance to own part of the engine of China’s ecommerce boom.
The group is one of a dozen express delivery companies that work closely with Alibaba, and piggy backed on the Hangzhou-based ecommerce group’s record $25bn listing in 2014.
Since Alibaba’s listing, ecommerce transactions in China have surpassed the US and last year amounted to $609bn, compared with the US total of $342bn. Parcel deliveries have risen yearly by 80 per cent since 2011 to hit $20.7bn last year.
“They are trying to capitalise on the growth prospects in China to lure western investors to get a piece of a very attractive company with a very attractive market share in a very attractive geography,” said Michael Underhill, a portfolio manager at US-based RidgeWorth Investments.
A major part of the success of Chinese ecommerce is down to cheap and fast delivery companies such as ZTO, which claims 14.3 per cent of the country’s express delivery market. They ship mountains of small parcels across the country and deliver them door-to-door on electric powered tricycles that have become ubiquitous in Chinese cities.
A wave of listings by delivery companies occurred this year, each seeking to raise money for fleets of cargo aircraft and expanded networks.
Competitor YTO became the first Chinese express company to go public in Shanghai last Thursday, while SF Express announced plans in May for a backdoor listing in Shenzhen.
“This [listing] trend shows that the delivery/logistics industry has a strong need for capital funding,” said Yao Jianfang, analyst at China e-Business Research Center, adding that those that managed to list will quickly put distance between them and the smaller players. “The delivery industry in China will see a clear market segmentation after this [IPO wave].”
For the US market, the deal comes at what could be a turning point in a slow year. US IPOs are running at their lowest level in years, but have been picking up of late.
Mr Guo said the company opted to list in the US to help lay the groundwork for global expansion.
“The US listing can help us to enhance the brand awareness and the reputation of the company with customers, consumers and potential business partners in the west,” he said.
Companies in ZTO’s hugely competitive industry ship high volumes with razor-thin margins. ZTO has drawn attention — and some scepticism — for announcing high profit margins compared with peers. ZTO’s prospectus said its net profit margin was 21.9 per cent in 2015, far above industry peers. SF Express, for example, had a net profit margin of 6.3 per cent, while YTO had a 3.4 per cent margin.
Ms Yao said she believed ZTO’s profit margin of 21.9 per cent was “clearly inflated” as courier companies typically make a 5 per cent margin per delivery.
Mr Guo attributed the higher margins to a combination of cost-saving measures, including using more in-house delivery trucks and automated sorting equipment, and the nature of the business model.
As had been speculated ahead of the listing, ZTO does not count the revenues of its partners that typically handle pick and delivery services while core hub operations are directly owned and operated by the company. That would result in much lower revenue and hence much higher profit ratio.
ZTO is one of several official logistics partners for Alibaba, which accounted for 77 per cent of ZTO’s parcel volume last year.
Morgan Stanley, Goldman Sachs, China Renaissance Securities, Citigroup, Credit Suisse and JPMorgan were joint bookrunners on the deal.
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