Shares of Tencent-backed J&T Express fall on debut in Hong Kong

Shares of Indonesia's J&T Express fell 1.33% when it went public on Friday.

The logistics services provider was trading at 11.84 Hong Kong dollars ($1.51) on Friday morning, after opening at HK$12.

The HK$3.92 billion (US$500 million) IPO is the second-largest listing in Hong Kong this year, after the Chinese premium liquor company. ZJLD group. Supported by the Chinese Baijiu manufacturer KKRIt fell almost 18% on its first day of trading on April 27.

Among the investors is the Chinese technology giant TencentUS-based venture capital firm Sequoia, Chinese private equity firm Boyu, SF Express and Singaporean sovereign wealth fund Temasek.

J&T Express is listed in an uncertain economic environment characterized by high inflation, high interest rates and ongoing conflict such as the Israel-Hamas war and the invasion of Ukraine.

“In the third quarter of 2023, global IPO activity remained sluggish due to macroeconomic and geopolitical uncertainties. Hong Kong's global IPO ranking fell to eighth place after a historically slow third quarter,” it said. In the KPMG report Published on October 9.

“The Hong Kong market has not recovered as much as we would like,” KPMG China partner Irene Chu told CNBC, stressing that the third quarter “continued to be very soft.”

J&T initially aimed to raise at least $1 billion in the IPO, but halved the target amount following weak investor demand. Reuters.

Companies looking to go public have “become more realistic” in their pricing, said Ringo Choi, Asia-Pacific IPO leader at EY. “The IPO price drops significantly by more than 50% or even 70%.”

China is J&T's largest market, where it delivered nearly 83% of its total parcels last year, serving e-commerce giants such as Pinduoduo and Alibaba's Taobao and Tmall. It will hold 10.9% of the market by parcel volume in 2022, the company said. ProspectusCiting Frost & Sullivan.

In May, it acquired China-based Fengwang Express for 1.18 billion yuan from the largest local player SF Express, which is based on its acquisition. Express delivery business from Chinese logistics firm Best in late 2021.

The Indonesian logistics provider delivered more than 14.5 billion parcels to China and Southeast Asia in 2022, up from 11.5 billion in 2020. In Southeast Asia, it is the largest operator in terms of parcel volume with a market share of 22.5%. According to data from Frost & Sullivan. Ali Baba– Owned Lazada, GoTo's e-commerce arm Tokopedia and Sea Limited‘s Shopee, are among its customers, the prospectus showed.

It posted a net profit of $1.57 billion in 2022, but went into the red In the first six months of this year, the net loss was $666.8 million, due to gross losses from operations in China and new market expansion in 2022, among others.

“In the long term, to realize our revenue potential and achieve profitability, we plan to further increase our parcel volume and market share, maintain a flexible pricing strategy, control costs, narrow gross losses and improve gross margin and strengthen operating leverage. “, – says the J&T prospectus.

Analysts warn us about this The ban on TikTok Shop in Indonesia, which prevents social media platforms from facilitating e-commerce purchases, could affect J&T Express.

“In Indonesia, there is some sharp short-term pain for J&T from the TikTok Shop ban, as J&T (profitable) handled the majority of TikTok Shop's millions of orders per day in Indonesia before the ban,” said Momentum Works. on October 17 blog post.

J&T Express confirmed that “there is considerable uncertainty” about how the new rules will affect various e-commerce and social media platforms in Indonesia, “some of which are our customers”.

But the company said it would not be adversely affected as revenue from social e-commerce platforms in Indonesia “remained immaterial” to the business.

In 2022 and the first six months of this year, revenue from social e-commerce platforms in Indonesia contributed only 4% and 6% to the company's revenue, J&T said.

“We believe that, however [the new e-commerce regulation] While it may affect our customer base in Indonesia in the near term, this new regulation will not have a material adverse effect on our business operations and financial performance in the long term.”