Jingdong Industrials jumps on Hong Kong IPO bandwagon

The B2B marketplace unit of JD.com has filed a second time to list, hoping to entice investors with its strong growth amid a surging Hong Kong stock market

Key Takeaways:

• JD.com has refiled to list its Jingdong Industrials subsidiary in Hong Kong, in a deal that could raise $1 billion or more
• The move may be timed to seize on the recent rally for Chinese stocks, but the IPO may miss that window due to time needed to complete the offering

By Xiao Lin

E-commerce giant JD.com (JD.US; 9618.HK) is becoming the first of China’s internet majors to try its luck at a new listing for one of its offspring to take advantage of a recent rally that’s seen Hong Kong stocks charge into bull territory over the past month.

The move is coming from Jingdong Industrials Inc., which is taking a second shot at an IPO after an initial failed attempt in tepid market conditions last year. The B2B platform, which connects industrial suppliers and their customers, refiled for an IPO just before the Oct. 1 holiday last week. If it completes the listing, it would become the sixth listed company from the JD.com family.

JD Industrials didn’t disclose its fundraising target, though it was reportedly seeking to raise about $1 billion at the time of its original application last year.

The company was born out of the massive network of industrial suppliers of its parent, which operates one of China’s largest e-commerce sites. Unlike competitor Alibaba (BABA.US; 9988.HK), which for years simply provided a marketplace where sellers and buyers could connect, JD.com mostly sells its own products directly to buyers. Most of those buyers are consumers, which today make up the bulk of JD.com’s business.

But a significant portion of buyers were also other businesses, often manufacturers. JD.com started operating that B2B part of its business as a separate unit in 2013. Four years later, the business began operating as a stand-alone unit, connecting a broad range of business buyers to suppliers of tools, parts or materials for their operations and production.

By the end of June, JD Industrials had 9,900 large businesses and over 2.6 million small and medium-sized enterprises as its customers, with access to about 90,000 manufacturers, distributors, and resellers, according to the preliminary prospectus.

Strong revenue growth

The company generates its revenue from selling both products and services on its platform. Its revenue has been growing steadily at healthy double-digit rates, in contrast to consumer-focused sites that have mostly reported slower growth. The first half of this year was typical of recent growth rates, with revenue rising 20% to 8.6 billion yuan ($1.2 billion). The company also reported its first profit in 2023, and that figure rose to 291 million yuan in the first half of this year.

Notably, JD Industrials’ services business is far more profitable than its core e-commerce business. The services business accounted for 36% of its gross profit in the first half of this year, even though services revenue accounted for just 7% of its total.

JD Industrials said it is in a good position to capitalize on the digitalization of China’s supply chains, which serve the world’s largest manufacturing base. Its core B2B market is still far less digitized than the country’s retail e-commerce sector, with many buyers still using lengthy processes to compare prices and quality across different suppliers.

JD Industrials hasn’t done much fund raising, only completing its B-round last year. But its backers feature such heavy hitters as HongShan Capital, formerly Sequoia China, and the Middle East’s Mubadala Investment, valuing it at about $6.7 billion after its latest round.

The IPO application looks timed to ride the latest stock rally, which has seen the benchmark Hang Seng Index soar more than 30% from a recent trough on Sept. 11. That rally has gone into overdrive since Sept. 24, when China’s central bank announced a series of new measures to support the economy. But such listings often take at least a few months to complete, so it’s quite possible the rally will fade by the time JD Industrials actually makes it to market.

A good comparison for the company is ZKH Group (ZKH.US), the second largest B2B platform after JD Industrials that went public in the U.S. last December. Unlike JD Industrials, ZKH started as a trading company selling imported adhesives and lubricants and set up its e-commerce platform much later in 2014. Its shares have lost three-quarters of their value from their IPO price of $15.50, though they have risen about 25% in the current rally.

In terms of other recent listings, another comparison could be the home appliance maker Midea, whose Hong Kong IPO last month complemented its existing listing in Shenzhen. Its Hong Kong shares rose 8% on their first trading day and have since risen over 45%. That strong debut, combined with a similarly strong $4 billion in funds raised, the most this year, have boosted hopes for a revival in major new listings by Chinese companies.

Patchy spinoff record

JD Industrials would become the latest member of the JD.com family to become publicly listed. Richard Liu started JD.com as a small business selling magneto-optical products in Beijing. Sixteen years later it listed on the Nasdaq in 2014, becoming the biggest listing by Chinese company in the U.S. at that time by raising $1.8 billion. It raised another $3.87 billion through a second listing in Hong Kong in 2020.

JD.com has become quite the diversified company over the years, with assets that now run the range from healthcare to property and logistics, in addition to its core e-commerce business. Many of those assets are now separately listed, both in New York and Hong Kong.

In June 2020, Dada Nexus (DADA.US), an intracity delivery company now 63% owned by JD.com, was listed on the Nasdaq. In December 2020, JD Health (6618.HK) was listed in Hong Kong, raising $3.5 billion, making it the largest healthcare IPO in Asia and the second-largest in Hong Kong that year. And in 2021, the company’s logistics arm, JD Logistics (2618.HK), which offers warehousing and delivery services, went public in Hong Kong. JD Logistics acquired rival Deppon (603056.SH) in 2022, which also remains publicly traded.

Despite those successes, some of JD.com’s other listing attempts for its offspring have met with a bumpier road. JD Technology, JD.com fintech arm, initially planned to list in Shanghai in 2020. But it ultimately scrapped that plan as Chinese regulators intensified their scrutiny of such fintechs – a movement that also killed Ant Group’s much higher-profile listing in Shanghai and Hong Kong in late 2020.

JD.com also submitted a plan to spin off and list its property unit early last year, at the same time it proposed the listing for JD Industrials. But it later suspended the IPO for JD Property, which buys land and builds JD.com’s warehouse and industrial parks, according to Chinese media reports, as China’s property market slumps after years of strong growth.

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