Liu Qiangdong Reaps the Harvest of JD Health's White-Hot IPO

By: Sumeet_Manhas

Share prices for JD Health International increased by 56 percent over its original offering price at closing on December 8, 2020, the first day of the company’s Initial Public Offering (IPO). Its share price for that day peaked at 70 percent over the IPO price of $70.58 in Hong Kong dollars (HK), equal to about $9.11 in U.S. dollars. This IPO price was already at the top end of the stock’s listing range. The stock closed on its opening day at HK$110, or US$14.19, and gained another two percent the following day.

This result marks a stellar beginning for the company many analysts consider to be China’s leading healthcare provider for online services. JD Health is the healthcare unit of JD.com, an ecommerce firm in China founded by Liu Qiangdong. JD Health is JD.com’s second publicly traded unit, although the firm is also planning to offer several of its other subsidiaries for public trade.

Multiple Listings

The performance of JD Health’s stock was good news for JD.com CEO Liu Qiangdong. China has recently prohibited major IPOs like Jack Ma’s Ant Group, which would have been the largest IPO in history. However, reports now indicate this firm may not attempt another IPO before 2022. JD Health’s IPO also comes at a time when U.S. stock exchanges may have to delist many Chinese companies if federal regulators aren’t willing to compromise on current auditing oversight requirements.

However, this issue hasn’t slowed Liu Qiangdong’s plans for additional listings. The company already has a primary listing on NASDAQ, but it made a secondary one on the Stock Exchange of Hong Kong (SEHK) in June 2020. Its stock price on the SEHK has increased by almost 40 percent since then, and the company’s NASDAQ listing has performed even better since then. As a result, the listings for JD.com and JD Health have been the two largest IPOs for the SEHK in 2020.

JD.com also raised $320 million on NASDAQ in June 2020 from the IPO of Dada Nexus (DADA), JD.com’s grocery delivery arm. Dada’s stock price has since doubled, largely due to investments from JD.com itself and Wal-Mart. The retail giant has been particularly keen to gain ownership of firms in China’s emerging markets. Regulatory filings show that Wal-Mart currently owns about US$2 billion in Dada shares.

JD Digits and JD Logistics are two other subsidiaries of JD.com that may get listings on stock exchanges in the near future. JD Digits is JD.com’s financial technology, or fintech, unit, which filed for an IPO on Shanghai’s STAR market in September 2020. This exchange is just over a year old, but it already has 200 listed companies. Investment bank China Renaissance reports that foreign investment in STAR has leaped from 270 million yuan (US$41 million) last year to almost 6 billion yuan (US$918 million) today.

JD Logistics has been considering an IPO with the SEHK since late 2019, with fundraising goals reportedly in the US$8 billion to US$10 billion range at that time. Reuters reports that this estimate is now much lower, with a top end of about US$3 billion. Industry insiders expect investment banks provide the great majority of this funding, probably by early 2021. However, JD.com hasn’t confirmed these reports.

Future Growth

JD Health is currently in a good position for continued growth, but it will face some challenges. Gil Luria, research director at D.A. Davidson says, “The market is currently putting a lot of emphasis on growth, especially with a long runway. As long as that is the case, JD Health may enjoy continued momentum.” Luria bases this assessment on the current shift toward telemedicine and online pharmaceutical sales in China.

He adds that technological advances are driving the trend towards telemedicine, especially video technology. Social factors such as a greater emphasis on preventative care and the limited availability of healthcare professionals in some regions of China are also key drivers for JD Health’s growth. However, capitalizing on these trends to provide flexible telemedicine solutions may prove challenging. For one thing, this market is becoming highly competitive in China, and there are few barriers to entry for new competitors. For another, increasing government regulations are likely to limit growth.

On the other hand, telemedicine is still in its infancy, so the market penetration of individual players is quite small, according to Lijun Xin, CEO of JD Health. Despite this, JD Health is still a leading telemedicine provider with the largest online medical consultation platform in China. Furthermore, the COVID-19 pandemic has made that country’s government far more receptive to telemedicine. JD Health has consequently received support and recognition in addition to many opportunities to demonstrate its capabilities in this area.

History

JD.com is an ecommerce company based in Beijing. Liu Qiangdong founded the firm in 1998, but didn’t take its retail platform online until 2004. The company has grown rapidly, obtaining 417 million customers by 2020. JD.com also obtained US$830 million from the private equity firm Hillhouse Capital in August 2020, which it used to invest in JD Health.

By Sumeet Manhas

© 2020 Copyright Sumeet Manhas - All Rights Reserved

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