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  • IPO Watch
  • china tech

JD Logistics IPO plans fail to lift JD.com shares

JD.com’s [JD] share price has been on a downward trend since hitting a high in February, falling 16.2% in the year-to-date through 20 May’s close.

The stock made solid gains at the beginning of the year, peaking at an intraday high of $108.29 on 17 February, before closing at $106.88.

Despite gains of 35.7% in the past 12 months (through 20 May’s close), JD.com’s share price has underperformed the S&P 500, which grew by 40% in the same period. Shares in the Chinese ecommerce company have outperformed the Shanghai Composite Index’s 21.7% gain during the period.

JD.com’s logistics arm, JD Logistics, is set for a public debut that investors may expect to boost the fortunes of its parent company, as well as the broader Chinese technology industry. However, as of 20 May’s close, JD.com’s share price has fallen 4.7% since the float was first approved on 30 April.

 

An investment network

JD Logistics’ IPO could raise up to $3.4bn, which would value it at $34bn. Reaching that valuation would make it the second largest IPO deal on the Hong Kong Stock Exchange so far this year, after video platform Kuaishou Technology’s [1024.HK] HK$42bn debut in January. Eight cornerstone investors, including units of Softbank Group, Temasek Holdings, and Blackstone Group, have agreed to purchase a combined $1.53bn of the stock, whatever its price, equating to 39-45% of the IPO.

JD Logistics’ debut will take place on 28 May, with the price to be set on 21 May. Reportedly 609.1 million shares are expected to be issued, priced between HK$39.36 and HK$43.36 (approximately $5.07 to $5.60), representing circa 10% of the company’s total shares. A greenshoe option to sell an additional 91 million shares could raise an extra $510m. JD.com and another of its subsidiaries sold shares last year, raising $8.5bn, according to Dealogic.

609.1 million

Predicted number of shares issued by JD Logistics

Proceeds from the float will be spent on improvements to its logistics network over the next three years, as well as technology development. These investments will enable JD Logistics, which currently holds 2.7% of the market according to its prospectus, to compete with the likes of Amazon Logistics [AMZN] and UPS [UPS].

 

Sector in decline

China’s tech sector has suffered over the past three months, with regulatory fears and global economic recoveries shifting investors’ attention towards more familiar sectors. JD Logistics has not shied away from this threat, highlighting the likelihood of tighter anti-monopoly regulations in its prospectus. Its IPO is likely to serve as an acid test of investor interest in Chinese tech stocks.

Several ETFs track the performance of the sector, three examples being the Global X MSCI China Information Technology ETF [CHIK], the Invesco China Technology ETF [CQQQ], and the KraneShares CSI China Internet ETF [KWEB]. All have fallen in the past three months, but the performance of their individual holdings has impacted their relative performance.

Of these three, only the KraneShares CSI China Internet ETF holds JD.com’s stock. As of 21 May, JD.com is the fund’s tenth largest holding, accounting for 3.96% of net assets. Over the past 12 months (through 20 May’s close), the KraneShares CSI China Internet ETF has seen a 36.3% increase in its value. However, it has fallen 7.6% in the past six months and, after a rapid rise to the $104 mark in mid-February, it trailed off dramatically. In the past three months, the KraneShares CSI China Internet ETF’s value has fallen 15.8%.

3.96%

JD.com's weighting in the KraneShares CSI China Internet ETF

The Invesco China Technology ETF and the Global X MSCI China Information Technology ETF both outperformed the KraneShares CSI China Internet ETF over the past 12 months (through 20 May), with growth of 40% and 44.4% respectively.

While their trajectories have mirrored those of the KraneShares CSI China Internet ETF, with a rise to mid-February followed by a steep decline since, both funds have sustained less extreme losses in the period. The Invesco China Technology ETF has fallen 20.6% in the past three months, while the Global X MSCI China Information Technology ETF has fallen 26.1%.

Disclaimer Past performance is not a reliable indicator of future results.

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*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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