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Singles' Day

ZTO Express drops in New York trading debut, weighed down by a declining market

Delivery company’s CFO says the company will use its IPO proceeds to buy land, expand its network

PUBLISHED : Friday, 28 October, 2016, 4:33am
UPDATED : Friday, 28 October, 2016, 9:52am

ZTO Express Inc.’s shares dropped in their trading debut in New York, as the delivery company that gets the bulk of its business from the planet’s largest online shopping platform was weighed down by a weak US equity market.

Shares of the Shanghai-based company began changing hands at US$18.40, below its initial offer price of US$19.50, and closed their first trading day at US$16.57 a share. The Dow Jones Industrial Average gained 0.2 per cent overnight, while the broader S&P 500 Index dipped 0.2 per cent and the Nasdaq Composite Index fell 0.6 per cent.

ZTO raised US$1.4 billion by offering 72.1 million American deposit shares, in the biggest initial public offering of stocks in the US this year.

The delivery service bucked the trend of seeking a backdoor listing on the domestic A-share market where the other powerful players include SF Express, YTO Express, STO Express and Yunda Express as they embark on reverse mergers to gain a listing status.

ZTO will use the IPO proceeds to buy land, expand its network and upgrade facilities to tap surging delivery orders in the world’s second-largest economy as e-commerce drastically changes people’s lifestyle and consumption habits.

ZTO Express Targets Biggest China IPO in U.S. Since Alibaba

Guo Jianmin, chief financial officer (CFO) of ZTO, told the South China Morning Post after the opening of trading that it wouldn’t “make economic sense” to take over small companies whose geographic distribution overlaps with its own.

“We will focus on organic growth to expand our market share,” he said. “Acquisitions are not necessarily the best choices for us.”

“After the listing, we hope to hone our image as a world-class express company and take advantage of this opportunity to improve efficiency,” said Guo. “Currently, we are focusing on density, rather than geographic coverage.”

ZTO’s delivery networks covered over 96 per cent of China’s cities as of June 30. The company is aiming to increase its market share in China from the current 14 per cent to 20 per cent by 2020.

The CFO said that apart from serving e-commerce retailers, ZTO also planned to diversify into segments such as business document delivery and logistic services to manufacturing companies.

ZTO partners with Alibaba, the world’s biggest online shopping platform and publisher of the Post, to fulfill orders.

More than 70 per cent of its business comes from Alibaba as online retailers use ZTO to deliver their products.

It is estimated that 60 billion deliveries will need to be handled in China by 2020 from 20.7 billion parcels last year, according to internet consultancy iResearch.

China has more than 800 million logistic firms, 90 per cent of which are small-scale or individually owned.

Most of the small express firms won’t be able to survive cut-throat competition in the coming years as large-size players bolster their efficiency and increase their handling capacity.

It is believed that gargantuan delivery firms, after listing, would increasingly take over small rivals in the coming four years in tandem with a consolidation of the industry.

Guo said that ZTO was prepared to handle as many as 60 million deliveries during the Singles’ Day shopping spree this year, more than three times its current daily business volume.

Purchases on Singles’ Day, which falls on November 11, was initiated and trademarked by Alibaba in 2012, which is a Chinese version of Black Friday shopping spree after Thanksgiving Day in the US..

ZTO Express reported net profits of US$200.4 million in 2015, a jump of 230 per cent from a year earlier. Its revenue grew 56 per cent to US$915.8 million last year.