Investors to focus on profit drivers in JD Logistics’ upcoming Hong Kong IPO
- E-commerce giant JD.com’s logistics unit is seeking to finalise its key investors with bankers as the global launch date approaches
- Firm predicts a bigger loss in 2021, after losing a combined 9 billion yuan (US$1.4 billion) over the past three financial years
The firm, which offers an integrated supply chain and logistics services to outside companies, predicts losses to snowball this year from 4 billion yuan (US$622 million) in 2020, according to its preliminary prospectus, and 5 billion yuan in the preceding two years.
“As we currently prioritise growth of our business and expansion of our market share over profitability, there can be significant fluctuations in our profitability profile in the near-to-medium term,” the logistics firm added.
BofA Securities, Goldman Sachs and Haitong International are joint sponsors of the IPO, while UBS acts as financial adviser. JD executives have been working with the bankers to nail down cornerstone investors, a precursor to a global launch. No dates have been decided at this stage.
China is the world’s largest logistics market based on total logistics spending of 14.9 trillion yuan in 2020. The market is forecast to reach 19.3 trillion yuan by 2025, the company said, citing industry researcher China Insights Consultancy.
Competition is particularly stiff in one corner of the logistics market, the express parcel delivery services, with reports about some new entrants setting prices at below cost to grab business. Average revenue per delivery has dropped by 50-60 per cent over the past three years, according to Charlie Chen, an analyst at China Renaissance Securities.
“The focus for the past three years for all players is to compete for market share,” he said. “So I don’t expect the price war will end any time soon.”
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Net profit margins for Chinese logistics firms have been squeezed, Chen added. ZTO Express, YTO Express, STO Express and Yunda Holding control as much as 70 per cent of mainland China‘s express delivery services business, he estimated.
Formerly known as Jingdong Express Group, JD Logistics was created in April 2017 as an “integrated logistics services player” offering a full spectrum of services, including last-mile delivery, warehousing and inventory management solutions, among others.
Technology is also how JD Logistics hopes to differentiate itself. In August, the company said that it would roll out 100 unstaffed vehicles in Changshu city in Jiangsu province and have up to 100,000 “autonomous robots”, which look like minivans, on the nation’s streets within five years.
JD.com owns 79.12 per cent of the logistics unit and pledged to continue holding effectively more than 50 per cent stake in the firm after the global stock offering, it said in a February 16 exchange filing.