JD Logistics Approved For IPO; Spinoff Could Raise $4B

JD Logistics, the logistics entity for Chinese e-commerce leader JD.com JD, was approved for an initial public offering (IPO) by the Hong Kong Stock Exchange. The spinoff could raise up to $4 billion, following the lead of its sibling spinoff, JD Health International (HKG:6618), which raised $3.9 billion in December.

On Monday, the logistics unit began premarketing meetings led by UBS Financial with joint sponsors including Bank of America BAC, Goldman Sachs GS and Haitong International, according to a report by GlobalCapital Asia. JD.com currently owns 79.12% of JD Logistics and will likely own more than 50% of the entity after listing.

Meetings are said to continue through May 14, with book building occurring on May 17. The report's source believes a price deal will occur on May 21 with a listing scheduled for the following week.

The potential raise could lead to a valuation of $40 billion, according to a Bloomberg report.

High investment Leads To Strong Technology, Loss Of Profit

While many of JD.com's rivals outsource their logistics needs, the company has heavily invested in the operations of JD Logistics.

According to the IPO prospectus, in 2020, JD Logistics operated over 800 warehouses, which makes up about 215 million square feet of space, and reported a team of over 190,000 delivery personnel that has been able to deliver 90% of total online retail orders throughout 99% of mainland China.

JD Logistics has a strong international presence as well, with 32 bonded and overseas warehouses reported in 2020. Along with these 5 million square feet of international warehouse space, the company started operating two automated warehouses in Poland and Germany in March.

In order to achieve that on-time delivery, the company operates 28 smart mega warehouses within 18 cities, processing more than 1.3 million orders per day during peak season. One of those warehouses is fully unmanned.

In order to achieve this logistical power, the company listed in its prospectus the leveraging of its 5G, cloud computing, AI technologies, automated guided vehicles (AGVs) and autonomous mobile robots (AMRs) as the key to speed, accuracy and productivity. JD Logistics reported it holds more than 4,400 patents and computer software copyrights, 2,500 of which are related to automation technologies.
Last year, the logistics company announced it was the first company to apply Level 4 autonomous driving vehicles on public roads without any human interaction. According to the company blog, this robot was heavily used in Wuhan, the epicenter of the COVID-19 outbreak.

The company recently won an award for its automation achievements at China's 2020 Science and Technology Awards for the Postal Industry. JD Logistics' 5G logistics park secured the title for its production control system that allows intelligent management vehicles and workers to recognize the volume of goods in a given space. The company stated it could reduce turnover days by 10% and improve efficiency by 500%.

While this investment led to a 47.2% increase in revenue in 2020, the company took a net loss of about $618 million last year. It expected a continued loss in 2021, but believes it can achieve profitability through further customer expansion.

JD.com is expected to report Q1 earnings on May 21.

JD's Consolidation Power

In JD.com's recent earnings report, the parent company of the potential IPO reported a 31% jump in fourth-quarter revenue, with the e-commerce company's largest jump in revenue coming from its core retail business totaling $31.9 billion.

This is just the beginning of the parent company's retail growth. Unlike the U.S., the Chinese retail market is highly fragmented, with the top 20 retailers in China making up only 17% of the total market, highlighted in the earnings report.

This fragmentation has led to a 32% compound annual growth rate (CAGR) from 2012 to 2020 in China's online retail market. This market is expected to experience 10% CAGR from 2020 to 2023, according to JD.com's latest earnings presentation.

The logistics spinoff could enable JD to take advantage of this defragmentation by creating a third-party selling platform that mirrors that of Amazon AMZN. 

With an expected 70% growth of China's middle class, JD Logistics may be well positioned to take off with the country's e-commerce growth.

Click here for more articles by Grace Sharkey.

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