Our thoughts on the upcoming J&T Express IPO

It is finally in the news that J&T will become publicly listed on 27 October on the Hong Kong Exchange. The US$500m IPO is the second largest in Hong Kong this year, after premium Chinese liquor (“baijiu”) maker ZJLD Group. 

Cornerstone investors of J&T’s IPO include Tencent, Boyu, D1, Sequoia, SF Express, Temasek and Aspex.

We have discussed J&T’s background and journey extensively in our earlier report Who is J&T, and shared some recent highlights in our complimentary report: J&T Express: highlights of draft IPO prospectus. 

Some additional thoughts: 

1. First, the public equity market in Hong Kong (and many other bourses) remains very challenging. Hang Seng Index and Hang Seng Tech Index both trended down this year, and multiple efforts to drive up the liquidity have not exactly worked yet. We have seen a few analysts challenge the reported valuations and put forward what they think is reasonable value. They are doing a good job analysing the numbers;
   
2. Our thoughts are J&T is undoubtedly the leading last mile logistics company in Southeast Asia. The pressure they face in the (gross level) profitable Southeast Asia market includes development of Shopee’s in-house logistics, as well as the price war waged by Alibaba-affiliate-funded Flash Express in Thailand;
3. There is some sharp short-term pain for J&T in Indonesia because of the TikTok Shop ban, as J&T was (profitably) carrying the majority of the TikTok Shop’s millions of orders a day in Indonesia prior to the ban;
4. Our thought is that this ecommerce volume lost by TikTok Shop will eventually recover (but likely not to be very fast). The factors will include TikTok Shop’s own efforts (and organisational alignment), other players’ ability to capture some of this volume (so far it has not happened), and politics in Indonesia (with all the politicking ahead of next Feb’s elections);
5. More large ecommerce disruptors with significant volume (e.g. Temu / TikTok Shop) in Southeast Asia will obviously play to J&T’s advantage. Not everyone would like to operate their own last mile, and would be able to do that reasonably cost effectively as compared to J&T;
6. China’s competitive landscape is trickier but the logic is probably similar. We believe a key objective of Alibaba’s restructuring is to sever the distractions to Taobao/Tmall Group so this core ecommerce arm can focus on competing effectively with Pinduoduo / Douyin (Chinese cousins of Temu / TikTok Shop). How that competition evolves will inevitably impact the ecommerce logistics landscape;
   
7. J&T’s franchise model is worth studying – not many logistics providers outside China have been able to do it (or at least as effectively). The leadership, organisation, people and culture of J&T is also worth studying – for this we have actually covered extensively in the Who is J&T report.  

IPO is just one of the many milestones for any ecommerce ecosystem company to build long term value. More ups and downs will surely follow – dig in.