ZTO Express of China Has Largest U.S. I.P.O. This Year


A delivery by ZTO Express in Beijing on Thursday. China’s delivery market is cutthroat, with an estimated 8,000 companies competing for business.

Thomas Peter/Reuters

The latest company to offer American investors a piece of China’s internet boom has risen with the help of thousands of couriers on electric carts who speed garments, lipsticks and electronics to customers’ homes.

The company, ZTO Express, is one of a host of delivery companies that have emerged in China to ferry packages from merchant to consumer to propel the country’s vast e-commerce revolution. China is now the world’s largest delivery market, with near 21 billion packages sent last year, roughly 70 percent originating from online transactions, according to the market research firm iResearch.

ZTO on Thursday said it had raised $1.4 billion in an initial public offering on the New York Stock Exchange. That makes it the largest I.P.O. in the United States this year, according to Dealogic, a deal information provider, eclipsing the $1.3 billion that the Japanese messaging company Line raised in July. That also makes it the largest American debut by a Chinese company since the huge $25 billion stock sale in 2014 by the Alibaba Group, the Chinese e-commerce giant that has underpinned the rise of companies like ZTO.

ZTO is one of four Chinese delivery companies that ferry a bit more than half of all packages in China. The companies, known as the Tongda Operators, share similar names, business models and origins, with all of the founders hailing from Tonglu County, about 50 miles south of Alibaba’s headquarters in Hangzhou, in the eastern province of Zhejiang. Proximity to Alibaba has been a boon for business; Alibaba’s online shops accounted for about 77 percent of ZTO’s business in 2015, according to the company’s I.P.O. prospectus.

“To Xinjiang, Beijing, anywhere in China, all the Tongda Operators are about the same price,” said Liu Song, who runs the Sweet Lisa Flagship Store, which sells women’s apparel on Alibaba’s Tmall online shopping platform. From China’s southern city of Guangzhou, Mr. Liu ships about 3,000 dresses, blouses and skirts each month, for roughly 53 cents a parcel. In 2011, he paid $1.20 per parcel to ship to Beijing.

“Every year the price is going down,” Mr. Liu said. “I don’t think it can go down any more.”

Though ZTO depends heavily on the legions of delivery people who zip around Chinese cities delivering makeup, clothes and gadgets, it doesn’t employ them. The Tongda Operators run only the sorting and long-haul transportation network, leaving last-mile delivery — traditionally the most costly link in the chain — to partners who ferry packages from hubs to homes.

That has helped ZTO maintain profit margins as prices charged to customers decline. ZTO earned a net income of $115 million on revenue of $639 million in the first six months of this year.

Almost anyone can open up a delivery outlet by paying a fee and signing a contract with ZTO or one of its partners. Then come logos, three-wheeled carts and delivery personnel to start carrying packages. These partners set the prices charged to senders and are the ones being squeezed by a price war.

Though the Tongda Operators are the biggest, China’s delivery market is fragmented and cutthroat. It has an estimated 8,000 delivery companies, according to 2015 figures from the China E-Commerce Research Center. No single courier holds more than 15 percent market share by volume, according to iResearch. Deutsche Post DHL pulled out of the domestic delivery market entirely in 2011; FedEx and UPS have a tiny share.

ZTO’s business model is particular to China, with its densely populated cities and its online shopping boom. It’s a business model probably unsuited for many other countries, so the bet for investors is on growth in China’s e-commerce market and eventual consolidation in the delivery space.

An American initial public offering like ZTO’s is unusual among China’s express delivery companies. ZTO’s immediate peers — YTO Express, STO Express and Yunda Express, as well as the premium competitor SF Express — are in the process of going public in mainland China using what are called reverse mergers, in which the company pours its operations into an existing company that has publicly traded shares.

ZTO said on Thursday it would sell more than 72 million shares at $19.50 each, though it said its underwriters had a 30-day option to purchase an additional 10.8 million. The offering was led by Morgan Stanley, Goldman Sachs, China Renaissance, Citigroup, Credit Suisse and J. P. Morgan.

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