China's ZTO slumps 15% after biggest US IPO of the year

ZTO opens after IPO, first trade at $18.40
ZTO opens after IPO, first trade at $18.40

Chinese package delivery company ZTO Express debuted on the stock market Thursday morning, opening at $18.40 a share before falling more than 15 percent.

The stock ended the day at $16.57.

"It's quite usual to see the volatility" in the shares, James Guo, the company's chief financial officer, told CNBC in a phone interview.

"The Chinese delivery market has tremendous potential," he said. "We expect we [will] continue to benefit from the continued e-commerce boom in China."

The stock market debut, the biggest by a Chinese company since the $25 billion IPO of e-commerce giant Alibaba in 2014, gave the Shanghai-based company a market value of more than $12 billion.

ZTO priced 72.1 million shares at $19.50 a share, above its previously indicated range of $16.50 to $18.50 a share. That price is about 27 times its expected 2017 earnings per share, according to people familiar with the company's financials.

The interest, analysts tell CNBC, comes from the access to the both the Chinese consumer and the Chinese e-commerce industry.

"There are very few stocks that allow access to the Chinese consumer, and this is one of them," Cindi Profaca at IPOfinancial.com told CNBC. "Industry trends in e-commerce are all pointing upward, at least for the moment."

China is the world's largest market for delivery services, with total parcel volume of 20.7 billion in 2015, approximately 1.5 times the total parcel volume of the United States. Most of ZTO's business is driven from e-commerce, which is still under-penetrated in China. Gross merchandise volume (GMV) has reached $609 billion in 2015 and is expected to increase to $1.465 trillion in 2020.

Something to note, however, is that 75 percent of ZTO's volume comes from Alibaba.

"Although we plan to expand and diversify our customer base, we still expect to be reliant on the Alibaba ecosystem for the foreseeable future," the company said. ZTO also acknowledges it may be difficult to control costs given the competitive nature of the Chinese e-commerce industry.

The company raised $1.4 billion in the biggest U.S. initial public offering of the year as its backers cashed in on China's booming online-shopping industry, a source familiar with the deal said.

The company is profitable, with strong operating cash flow, a projected $1.5 billion in sales by the end of 2016, according to Renaissance Capital. It wants to use $720 million of its IPO proceeds to buy more trucks, land, facilities and equipment.

—CNBC's Bob Pisani and Evelyn Cheng contributed to this report.