How did TikTok Shop’s shutdown in Indonesia affect J&T’s IPO?

Published on November 13, 2023

J&T Express, the Indonesian logistics services provider known as a top contender in e-commerce delivery, went public a few weeks after its major client TikTok suspended its online shopping service in Indonesia to comply with new regulations, effectively banning e-commerce transactions on social media platforms. 

Considering that J&T used to process millions of orders from TikTok Shop in the archipelago, market analysts expressed concerns that the ban could affect the performance of the delivery company on the eve of its IPO.

On a recent episode of Indonesia Digital Deconstructed Adrian Li ⁠ and Leighton Cosseboom of AC Ventures discussed J&T’s public debut in Hong Kong and how the company may now adjust its strategy to deal with regulatory hurdles in Indonesia and potentially other countries in the bloc. 

Growth potential, despite regulatory changes

Adrian explained that J&T has lost a significant volume of parcels after TikTok Shop closed down in recent weeks. That said, the regulatory changes could stimulate J&T to secure more orders via other platforms, including Tokopedia, Bukalapak, and Shopee. Leighton pointed out that J&T already has a diversified client base. Aside from TikTok Shop, it has already been working with the major incumbent e-commerce platforms in Indonesia. “Despite regulatory hiccups, the Indonesian market still holds immense growth potential,” he said.

J&T itself stated publicly that there would be no major impact from the shutdown. In 2022 and the first six months of 2023, revenue from social e-commerce platforms in Indonesia contributed only 4% and 6%, respectively, to the company’s overall revenue.

“This new regulation will not have a material adverse effect on our business operations and financial performance in the long term,” the company stated.

Meanwhile,  Adrian noted that there could be potential legal risks regarding J&T’s operations in Indonesia, considering that its headquarters are in China, and Indonesia restricts maximum foreign ownership in the logistics industry to 49%. 

In line with his remark, Leighton underscored the importance of addressing any investors’ doubts, considering that the company is now public. “If they are in the clear, legally speaking, they’re going to need to address the global investor class and allay any concerns,” he said. “They now have to deal with that sort of financial communication to the public at large.”

Going public amid uncertainty

J&T, the second-largest listing in Hong Kong this year, had initially planned to raise at least US$1 billion. However, amid an economic slowdown and diminished investor appetite, it cut the IPO size by half to around US$500 million. 

The share price of J&T set at HK$12 (USD$ 1.54) decreased by 1.3% on the first day of trading. This did not come as a surprise, considering that five of the latest nine large IPOs in Hong Kong had flat debuts, according to Arun George, co-founder and analyst at Global Equity Research.

Leighton explained that hopes for a steady stream of IPOs from China have been dashed by the country’s sluggish economy and rising geopolitical risks. The main stock market index in the city of Hong Kong has also dropped by over 8% this year.

Adrian pointed out that attracting investors is particularly challenging for a company that, like J&T, is not profit-making yet. Although in its IPO prospectus, J&T announced plans to reach profitability in the long term, it is unclear yet, when the breakthrough is expected. 

Funds for expansion

J&T launched in Indonesia in 2015, leveraging the booming e-commerce industry. The entrepreneurial talent of the co-founders — two former executives of the Chinese smartphone and electronics manufacturer Oppo — combined with favorable market conditions led to the company’s success in Indonesia and rapid international expansion.

Today, J&T, which operates in 13 countries, aims to enter more markets and increase its number of deliveries to benefit from economies of scale. Adrian pointed out that the decision to go public in an “extremely challenging” IPO market could be driven by the need to secure financing for further development.

“Private capital is probably tapped out, and perhaps the strategic investors were not willing to continue putting money into a private company without knowing its fair value in the public market. So, perhaps it was not a choice as to whether they wanted to IPO or not,” he explained. “I think they may have preferred to remain private, but it was the necessary action to raise the half-billion dollars or so to fuel the expansion,” he said, adding that J&T is likely to soon enter the UAE and the Middle East. 

Speaking about the prospects for the IPO, Adrian pointed out that considering the Federal Reserve’s recent decision to keep rates steady with signals that they will stay unchanged in the near term, it’s unlikely that the IPO market will open up over the next six months. But perhaps there is hope for the second half of 2024.

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