This file photo shows a stand for JD Logistics at an expo in Shenzhen, South China's Guangdong province, Oct 11, 2018. (PHOTO / VCG)
JD Logistics Inc rose as much as 18 percent on its first day of trading after raising US$3.2 billion in the second-largest initial public offering in the Hong Kong Special Administrative Region (HKSAR) this year.
Shares of the delivery arm of Chinese mainland's e-commerce giant JD.com Inc climbed to as high as HK$47.75 in the HKSAR on Friday, before giving up some of their gains. The stock had been priced at HK$40.36, the lower end of its offered range, fueling concern that demand for new listings in the Asian financial center has cooled after the blockbuster coming-out party of Kuaishou Technology earlier this year. JD.com was little changed.
Frankly speaking, the focus for next few years will still be growth … We will focus on business expansion and revenue growth for the next several years. Our net margin will keep improving in the long-term.
Yu Rui, Chief Executive Officer of JD Logistics Inc
The listing will allow JD Logistics to expand its network of more than 900 warehouses into less-developed regions of the mainland and new markets overseas, while adding to the US$782 million it’s spent on technology between 2018 and 2020. The company joins internet giants from Alibaba Group Holding Ltd to Tencent Holdings Ltd and Meituan in boosting spending, as increased antitrust scrutiny from regulators in Beijing threatens their most lucrative businesses from e-commerce to fintech.
“Frankly speaking, the focus for next few years will still be growth,” Chief Executive Officer Yu Rui said in an interview with Bloomberg Television. “We will focus on business expansion and revenue growth for the next several years. Our net margin will keep improving in the long-term.”
Created in 2007 and set up as a standalone unit under JD.com a decade later, JD Logistics’ networks include both so-called last mile and longer distance lines, as well as cold chain and bulky item networks, according to its prospectus. It is still loss-making, reporting a net loss of 4.1 billion yuan (US$642 million) last year.
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JD Logistics’ IPO valuation of up to US$32 billion is reasonable compared with peers given its stronger growth prospects, despite the likelihood of further losses in 2021, according to Bloomberg intelligence analysts James Teo and Chris Muckensturm. Earnings volatility can be expected while the company prioritizes business and market-share growth over profitability in the near to medium terms.
With just a 2.7 percent share of the logistics industry, JD Logistics is seeking to expand its footprint outside the mainland, including into Europe, where rivals like Alibaba’s Cainiao have also been growing. The company will probably set up logistics centers on the continent within a year, Yu said in the interview. The intense competition in the business of providing logistics to other enterprises means JD Logistics will be relatively insulated from the mainland's scrutiny as it ventures overseas, he added.
With just a 2.7 percent share of the logistics industry, JD Logistics is seeking to expand its footprint outside the mainland, including into Europe, where rivals like Alibaba’s Cainiao have also been growing
“JD Logistics is doing better than any other companies in B2B sector in terms of ensuring the benefits of our front-line workers and regulatory compliance,” said Yu, a JD Group veteran of 13 years. “From our point of view, we don’t see much potential risks in regulation.”
JD Logistics’ debut is far more muted compared with the 161 percent first-day surge for short-video platform Kuaishou. It is the second unit to be spun off from JD.com in the past six months, following the December listing of JD Health International Inc. The e-commerce operator had also sought to list its fintech division last year before a crackdown on the sector forced it to shelve its plans.
Decoupling from its parent will allow JD Logistics to tap new customers, including short video platforms like ByteDance Ltd’s Douyin and Kuaishou that are increasingly expanding into online shopping, according to Jacob Cooke, chief executive officer at e-commerce and technology consultancy WPIC. That will allow the firm to expand its market share and bring about economies of scale that will help it achieve profitability, he added.
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“JD Logistics fits in very well with the regulatory plans of the Chinese government in breaking up these monopolies and really allowing them to go get a new customer base operating independently, like they are now,” Cooke said in a Bloomberg Television interview. “Now that they’re independent – and there’s so much that goes on with data sharing in China too – but that’s really going to make other platforms and other brands feel more comfortable using JD Logistic’s products to help with their fulfillment.”