The latest spinoff from China’s second largest e-commerce company needs to move quickly to deliver.
filed last month to list its logistics unit in Hong Kong. The company, which operates more than 800 warehouses and has over 190,000 delivery staff, could be worth $51 billion to $56 billion, according to Bernstein. That would be JD’s second multibillion spinoff in recent months. The initial public offering of JD Health in December raised $4 billion, the largest in Hong Kong last year. JD has also filed to list its fintech unit, JD Digits, on China’s red-hot STAR Market, but its fate could be in doubt given the recent troubles of the sector—rival Ant Group’s record IPO was pulled at the last minute on regulatory concerns.
It makes sense for JD to spin off units that the market is willing to give a much higher valuation. JD Health, for example, trades at 21 times sales while JD itself trades at 1.4 times, according to FactSet. JD still owns 67.5% of the health unit, which has a market value of $45 billion. Assuming JD keeps a similar stake in the logistics unit after its IPO, the two units could be worth about half of JD’s current $134 billion market capitalization.
JD Logistics also represents how JD sets itself apart from its biggest rival, Alibaba. JD has long spent heavily on its own logistics network, unlike Alibaba, which acts as a marketplace for merchants and outsources its delivery to third-party courier companies. JD’s more reliable and timely delivery shone during the Covid-19 pandemic. JD Logistics said about 90% of the orders it processed for its parent last year were delivered on the same day or the day after.
JD Logistics has started serving external customers in recent years as well as merchants selling on JD’s online marketplace. Its parent still accounts for more than half of its revenue, but revenue from external customers is growing much faster. JD Logistics’s revenue in the first nine months last year grew 43% from a year earlier. Its gross profit margin has also improved to 10.9%, from 8.5%.
The bigger problem for JD now is that Chinese stocks seem to be losing steam. Many investor darlings of the past few years are off more than 20% from their recent peak just in the past month or so. Food-delivery company
has now dropped nearly a third from its peak last month, while liquor giant
has fallen about a quarter. JD Health also closed Monday at its lowest level since its IPO.
JD will need to deliver the spinoff before market sentiment sours further.
Corrections & Amplifications
Shares of food-delivery company Meituan has dropped nearly a third from its peak last month. An earlier version of this article used its old name. (Corrected on March 8.)
Write to Jacky Wong at JACKY.WONG@wsj.com
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