Shares in the supply chain and delivery unit of Chinese e-commerce group JD.com rose 14 percent on their debut, after the company raised $ 3.1 billion this year in one of Hong Kong’s largest equity offerings.
JD Logistics is a spin-off comparable to the logistics branch of the American tech group Amazon. The company delivers 90 percent of packages on the same or next day to parent company JD.com, its largest customer, but is increasingly focused on providing delivery and logistics services to external customers.
The IPO comes as the Chinese government ramps up research into the country’s tech sector. Beijing-based JD Logistics’ market cap reached approximately $ 36 billion after trading began in Hong Kong on Friday.
While the unit benefited from a boom in online shopping during the Covid-19 pandemic, the IPO fell short of expectations compared to when the company first submitted its listing materials several months ago.
“The capital markets were hot at the time,” Yu Yui, CEO of JD Logistics, told the The Washington City Times. “For JD Logistics, our IPO is only a time, it is not the end point. . . if it [price] is within a reasonable range, I think it is good. “
Analysts said the drop was due to a drop in the share price of rival SF Holdings and rising losses at JD Logistics as it invests heavily in infrastructure.
The group has added approximately 200 warehouses in the past six months. Operating loss in the first quarter amounted to Rmb1.5 billion ($ 235.3 million), while revenue increased 64 percent year over year to Rmb22.4 billion.
“In the final prospectus, they said they would lose a lot of money in 2021, so the estimates went down,” said a Hong Kong analyst.
The IPO is also the second major spin-off for JD.com, whose health unit raised $ 3.5 billion during an IPO in Hong Kong in December. JD.com’s fintech arm withdrew its proposed IPO in Shanghai’s Star market last month amid the regulatory crackdown.
Last year, JD Logistics earned about half of its revenue from shipping parcels for parent company JD.com. But the portion of the business that focuses on external customers is growing faster, recording three-digit growth in the first quarter.
JD Logistics serves external customers “was our thesis when we decided to invest in 2018,” said Colin Guo, a partner at Sequoia Capital China. “If they were only doing JD’s own logistics, their growth rate would be tied to JD’s – so investors and management had the goal for them to bring in more external customers.”
The company had 190,000 outside corporate customers in December.
“JD Logistics is one of our most important external logistics suppliers. They are efficient and at the right price – in China there are many options for logistics, ”said Anderson Peng, vice president of supply chain for shoe brand Skechers China.
Yu said another growth opportunity for JD Logistics has been so-called live streaming ecommerce on video apps such as ByteDance’s Douyin, the Chinese version of TikTok and Kuaishou, as well as merchants selling goods on Tencent’s WeChat platform. “We can help them all,” he said.
JD Logistics’ 190,000 couriers have also started delivering packages for private individuals. Sending a 1kg bag of apples from Beijing to Shanghai costs about Rmb16, a 28-year-old delivery boy nicknamed Yang said. “More and more people know our courier services and are starting to use us,” he added.
While analysts from research group Bernstein estimated that JD Logistics’ courier service for individuals accounted for 14 percent of sales last year, they noted that the logistics industry in China is fiercely competitive with prices falling about 10 percent annually over the past decade.
They added that JD Logistics’ low prices and marketing spend would put pressure on profitability for the foreseeable future.