Analyzing J&T Express’s IPO amid market turbulence in Hong Kong

Published on November 10, 2023

Indonesian logistics services provider J&T Express originally expected to raise at least US$1 billion in an initial public offering (IPO) on the Stock Exchange of Hong Kong in late October 2023. However, due to an uncertain market environment and cautious investor sentiment toward China, one of J&T’s core markets, the company decided to halve its IPO size to US$500 million. Further pressure was added by regulatory changes leading to the shutdown of TikTok Shop in Indonesia, for which J&T was a primary service partner.

On a recent episode of Indonesia Digital Deconstructed Adrian Li ⁠ and Leighton Cosseboom from AC Ventures discussed how the market environment and changing regulations impacted J&T’s strategy and performance. The pair looked into how J&T’s association with key e-commerce platforms like Shopee and Tokopedia could help it navigate effectively moving forward in Southeast Asia.

J&T went public with shares priced at HK$12 each (US$1.54). Shares opened flat and subsequently fell by 1.3%. Its listing was the second-largest listing in Hong Kong this year, following Chinese liquor company ZJLD Group. Its debut performance, however, was much better than ZJLD’s, which slumped 18% on its first day of trading in April. 

In the first three quarters of 2023, the Hong Kong IPO market executed 44 listings, and raised HK24.6 billion (US$3.14 billion), representing a reduction of 65% and 15% respectively compared to the same period last year, as per KPMG.  Analysts expect challenges to persist due to high interest rates and slowing economic growth. 

An earlier report in July predicted the Hong Kong IPO market could rebound in the second half of 2023 but this did not materialize. 

On a positive note, however, the number of active IPO applicants continued to accumulate steadily, reaching around 110 at the end of September.

Thriving in a competitive environment

Adrian pointed out that J&T has been operating in an extremely competitive environment from the beginning. The firm was established by two senior executives from the Chinese smartphone maker Oppo to serve Southeast Asia’s rapidly expanding e-commerce market. In 2015, J&T Express Indonesia officially launched operations in Jakarta and gradually expanded to other markets – one of which was China.

“Everyone knows how competitive the Chinese market is, and an Indonesian-born company entering China and competing with the incumbent players there is quite a remarkable achievement. It is an incredible tale of entrepreneurship” he said. 

Currently, J&T’s network spans 13 countries, including Indonesia, Vietnam, Malaysia, the Philippines, Thailand, Cambodia, Singapore, China, Saudi Arabia, the UAE, Mexico, Brazil, and Egypt.

In the first half of 2023, J&T reported a net loss of US$666.8 million, primarily attributable to gross losses from operations in China and the expansion into new markets in 2022, as indicated in its financial statement. In its IPO prospectus, the company revealed plans to further grow parcel volumes and achieve profitability in the long term. 

“In China, we expect to increase our parcel volume and market share through strengthened collaboration with existing e-commerce clients and expanding partnerships with more e-commerce platforms,” the prospect says. J&T also mentioned that it plans to utilize IPO funds to expand its logistics network, enter even more markets, and introduce new tech.

The company expects the average cost per parcel to decrease in both China and Southeast Asia as it optimizes operations and achieves economies of scale. In China, J&T achieved an average daily parcel volume of 46 million in August, representing a market share of 12.4%.

IPO: a choice or necessity?

Leighton assessed that, given the current climate, J&T may have taken the right precautions in terms of slashing its valuation and offering a smaller nominal pre-IPO. He said, “As the Indonesian tech ecosystem continues to mature, I think it will continue to be important to take such precautionary measures before companies attempt any sort of mega-IPO in this climate.”

Adrian agreed that it’s extremely challenging for companies to go public right now unless they are profitable or on a clear path toward profitability. He pointed out that, although the US tends to lead the world when it comes to tech IPOs, even there, performance has been lackluster this past year.

Adrian pointed out that J&T’s IPO may have been executed out of sheer necessity. He explained, “I do think the only companies striving for an IPO are those compelled by internal investors due to the requirement of fund exit time horizons or those that have exhausted all forms of private capital markets. When this happens, an IPO is now the only way to raise additional capital and, while we can’t be certain, this may have been the case for J&T.”

Get the full episode for free on Spotify, Apple, and Google.