Jingdong Industrials’ stalled Hong Kong IPO clears key hurdle

The listing plan by China’s leading B2B marketplace for industrial buyers has received a green light from the country’s securities regulator

Key Takeaways:

• Jingdong Industrials has received the regulatory nod from China’s securities regulator for its Hong Kong IPO, paving the way for the listing to proceed
• The company could raise more than $1 billion, based on a likely valuation between $4 billion to $7 billion

By Doug Young

After three years of waiting, the latest offspring from e-commerce giant JD.com (JD.US; 9618.HK) may finally be close to making its market debut. That’s our latest assessment, after a stalled Hong Kong IPO by Jingdong Industrials Inc., JD.com’s B2B marketplace, was formally registered this week on the China Securities Regulatory Commission’s (CSRC) website. Such registration is a key regulatory step all Chinese companies must clear before they can list in offshore markets, mostly in the U.S. and Hong Kong.

According to the CSRC announcement, Jingdong Industrials plans to sell 253 million ordinary shares in the listing. The company first filed to list in Hong Kong in 2023, and filed a second application last year. It tried again with a new filing this March, though that will expire at the end of this month. That means we’re likely to see it file again before the end of the year.

Jingdong Industrials will offer a relatively new option for e-commerce investors with its focus on B2B products and services, unlike the vast majority of Chinese operators that focus on selling to consumers. B2B typically offers bigger volumes per transaction than B2C, since business buyers tend to make bigger purchases than individual consumers. But such bulk comes at a cost, since bigger volumes often carry much lower margins.

Jingdong Industrials is a case in point. Its gross margin for 2024 stood at a relatively low 16.2%, far less than the 41% for Alibaba (BABA.US; 9988.HK) and 58% for Pinduoduo (PDD.US) in the 12 months through June. That discrepancy also helps to explain why Alibaba ultimately delisted its own original Alibaba.com B2B marketplace in 2007, after the stock stagnated during five years as a listed company.

All that said, Jingdong Industrials could still be relatively attractive due to its sheer size and the size of the China market. The company is the leader in B2B products and services from the maintenance, repair and operations (MRO) segment, which includes things like office and cleaning supplies and production maintenance tools. It operates in a Chinese industrial supply chain market that was worth 11.4 trillion yuan ($1.6 trillion) in 2024, according to third-party market data in its listing document filed in March.

The company points out that just 6.2% of that huge market was digitalized in 2024, though the rate is expected to grow to 8.2% by 2029. As that digitalization rate grows, the size of China’s industrial supply chain technology and service market where Jingdong Industrials operates is expected to grow nearly 10% annually from 700 billion yuan in 2024 to 1.1 trillion yuan in 2029.

Jingdong Industrials didn’t provide any fundraising targets in its March document, though the deal has some big backers, including BofA, Goldman Sachs and Haitong as underwriters, and Citic Securities and UBS as financial advisors. The company was reportedly seeking to raise $1 billion at the time of its 2023 application, and we wouldn’t be surprised to see it try for considerably more in the current hot Hong Kong IPO market.

Big backers

Jingdong Industrials was formally spun off from JD.com as a separate operating entity in 2017, and an IPO would make it the group’s fifth listed company, alongside the original JD.com, and its JD Health (6618.HK), JD Logistics (2618.HK) and Deppon (603056.SH) subsidiaries. The company also attempted to list its JD Technology fintech arm in Shanghai in 2020 and submitted a similar plan for its property arm last year, but neither deal made it to market.

From a valuation perspective, JD Industrials was last valued at $6.7 billion after a $300 million financing in 2023, whose backers included HongShan, formerly known as Sequoia China, and Mubadala, a sovereign wealth fund of the Abu Dhabi government.

If the company succeeded in its earlier listing plans, we seriously doubt it could have maintained that earlier valuation. But things look considerably better now, as Hong Kong stocks rally amid one of the strongest IPO markets in years. Comparable global MRO majors Applied Industrial Technologies (AIT.US) and W.W. Grainger (WWG.US) both trade at price-to-earnings (P/E) multiples of about 25 and price-to-sales (P/S) ratios of around 2.5. Similar ratios for Jingdong Industrials would value the company at between $4 billion and $7 billion, based on its sales and adjusted profit for 2024.

The company’s financials look relatively solid, especially in the current climate where most companies are reporting sluggish growth and even revenue contraction. One of Jingdong Industrials’ strengths is its asset-light model, which sees it mostly pool requests from customers before placing actual orders with suppliers, limiting its inventory risk. That differs from JD.com’s main B2C marketplace, which holds far higher inventory levels of products that it purchases first and then gradually delivers to consumers as orders come in.

“Such approach allows a great part of our orders to be delivered directly from the supply end to the demand end,” it said. “With our asset-light model, we have developed an expansive business, which enables us to scale rapidly and efficiently.”

The company’s revenue from continuing operations grew 18% year-on-year to 20.4 billion yuan in 2024 from 17.3 billion yuan in 2023. While that looks quite healthy, we should point out it marks a slowdown from the 23% growth the previous year.

The big majority of the company’s revenue – about 94% last year – comes from product sales, with the rest from its services business. But the services business contributed a much larger proportion of the company’s gross profit last year, about a third of the total, reflecting its far higher margins than the product business. Unfortunately for Jingdong Industrials, service revenue has been flat over the last three years, while all of its revenue growth has come from higher product sales, which is ultimately dragging down its overall gross margin.

Despite that, the company’s bottom line still looks relatively attractive, including a 2024 profit of 762 million yuan and adjusted profit of 1.1 billion yuan. For investors, the bottom line is that Jingdong Industrials looks relatively attractive for its dominant market position, asset-light model and relatively strong profitability. Those factors, combined with Hong Kong’s hot IPO market right now, should probably translate to relatively strong demand for its listing, though investors will undoubtedly be looking closely at how it values its stock.

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