(ATF) Chinese e-commerce giant JD.com has applied to list its delivery arm JD Logistics in Hong Kong, which will be the third initial public offering (IPO) of Chinese billionaire Richard Liu’s business empire within nine months.
The company did not specify the amount it hopes to raise in its prospectus filed on Tuesday, but a Bloomberg report in November said the IPO is expected to raise about $5 billion, with the total value of JD Logistics possibly reaching $40 billion. That would make JD Logistics China’s second-most valuable delivery company after Shenzhen-listed SF Express.
JD Logistics’ IPO comes after JD.com’s $4.5 billion secondary listing last June and a $3.5 billion IPO by JD Health in December, both of which were in Hong Kong.
Merrill Lynch, Goldman Sachs Group, and Haitong International Capital are co-sponsors of the public offering.
Despite help from its parent company, which is China’s second largest e-commerce platform, JD Logistics has been bleeding money for more than a decade. In a letter to his “delivery brothers” in April 2019, when Liu was forced to cut benefits and cancel base salaries for JD delivery crews, Liu wrote that financing could only support JD Logistics’ operation for two years if the company kept losing money.
JD Logistics seems now close to breaking even, thanks to the e-commerce boom amid the Covid-19 pandemic. The company has seen a rapid recovery of its business growth starting in the second quarter of last year.
In the first nine months of 2020, JD Logistics’s revenue climbed 43.2% year-on-year to 49.5 billion yuan ($7.7 billion), and it managed to narrow its losses to 11.71 million yuan ($1.8 million) from 996 million yuan ($154 million) during the same period in 2019.
“As consumers became accustomed to online shopping in order to minimise exposure to the virus, there was an increase in the demand for our supply chain solutions and logistics services especially in certain industry verticals, such as fast moving consumer goods,” JD Logistics said.
Unlike its larger rival SF Express, a purely third-party delivery service provider, JD Logistics has grown by serving as the internal delivery department of JD.com, similar to a model now used by Amazon in the US, where the American e-commerce giant has built up its own logistics capabilities.
JD Logistics became a stand-alone business in 2017 and began to work with external customers.
In its prospectus, JD Logistics said it is now serving 190,000 clients, with revenues from external clients accounting for 43.4% of total revenue in the first nine months of 2020, up from 38.4% in 2019 and 29.9% in 2018.
However, analysts from Chaos Research Institute do not find JD Logistics’ external-facing services to be competitive.
“JD Group contributed 30.7 billion ($4.7 billion) to JD Logistics’ revenues in 2019, but third-party e-commerce platforms only contributed 3 billion ($463.8 million). The proportion does not match that of the gross merchandise volumes, which was about six to four according to 2016 data. The usage of JD Logistics’ delivery services on third-party platform is a bit low,” Chaos Research Institute said.
Apart from third-party e-commerce platforms, the average revenue from each customer of JD Logistics’ integrated supply chain service were modest – 241,622 yuan ($37,355) in the first nine months of 2020.
“Thanks to JD Group’s strong relationship with brands, JD Logistics can quickly acquire outsourcing customers. But it seems that most customers only outsource part of their supply chain to JD Logistics, not the entire function,” Chaos Research Institute said.
While SF Express is adept at expanding its business capabilities through acquisitions and recruiting industry veterans, JD Logistics’ management team is made of old timers, and the company has made very few acquisitions, the research firm said.
JD Logistics employs more than 240,000 people and operates more than 800 warehouses across the country. In comparison, FedEx – which has a market capitalisation of $68 billion – employs a total of 245,000 people across various services worldwide.
JD’s other IPO plan for its fintech affiliate, JD Digits, appears to have been delayed after Beijing last year began stepping up its regulation of internet giants, especially those with fintech operations.
Originally named JD Finance and offering microlending services, JD Digits filed for an IPO in Shanghai’s Nasdaq-style STAR Market last September.
JD Digits was merged with JD Group’s artificial intelligence and cloud businesses to become JD Technology, as the company sought to rebrand itself in response to Beijing’s increasing scrutiny of large tech companies’ involvement in finance.