Introduction

Shares of Indonesia’s J&T Express fell 1.33% when it went public on Friday. The logistics service provider traded at 11.84 Hong Kong dollars ($1.51) on Friday morning, after opening at HK$12. The HK$3.92 billion ($500 million) IPO is the second largest listing in Hong Kong this year.

Investors and Market Conditions

J&T Express investors include Chinese tech giant Tencent, U.S.-based venture capital firm Sequoia, Chinese private equity firm Boyu, SF Express, and Singapore’s sovereign wealth fund Temasek. The company is listing in an uncertain economic environment, characterized by hiking inflation, high interest rates, and ongoing conflicts. KPMG reported that Hong Kong’s global IPO ranking dropped to eighth following a historically slow third quarter.

“The Hong Kong market has not recovered as much as we would like,” said Irene Chu, partner at KPMG China, highlighting that the third quarter “continued to be very soft.” J&T had initially aimed to raise at least $1 billion in the IPO but halved the target amount on weak investor demand, according to Reuters. EY’s Asia-Pacific IPO leader, Ringo Choi, stated that companies looking to go public have become more realistic in their pricing, with IPO pricing dropping significantly by more than 50% or even 70%.

J&T Express Operations

China is J&T’s largest market, where it delivered nearly 83% of its total parcels last year, serving ecommerce giants like Pinduoduo and Alibaba’s Taobao and Tmall. The company held a 10.9% market share by parcel volume in 2022. J&T Express also acquired China-based Fengwang Express in May and expanded its operations in Southeast Asia. It delivered a total of more than 14.5 billion parcels in 2022 across China and Southeast Asia.

In Southeast Asia, J&T Express is the largest operator with a 22.5% market share in terms of parcel volume. Its customers include Alibaba-owned Lazada, GoTo’s e-commerce arm Tokopedia, and Sea Limited’s Shopee.

Financial Performance

J&T Express posted a net profit of $1.57 billion in 2022 but experienced net losses of $666.8 million in the first six months of this year. The losses were attributed to gross losses from operations in China and new market expansion in 2022. The company plans to continue growing its parcel volume and market share, maintain a flexible pricing strategy, control costs, narrow gross loss, improve gross margin, and enhance operating leverage to achieve long-term profitability.

Analysts warn that TikTok Shop’s ban in Indonesia, which disallows social media platforms from facilitating e-commerce purchases, could impact J&T Express. TikTok Shop is the e-commerce feature of popular short-video app TikTok.

J&T Express acknowledged the uncertainties and potential impact of the new rules on different e-commerce and social media platforms in Indonesia. However, the company stated that revenue from social e-commerce platforms in Indonesia remains “immaterial” to its business. In 2022 and the first six months of this year, revenue from social e-commerce platforms in Indonesia contributed only 4% and 6% respectively to the company’s revenue.

Conclusion

Despite the initial decline in share price and potential challenges from regulatory changes, J&T Express remains optimistic about its long-term business operations and financial performance.