[March 11th, 2021]
JD Logistics expects to list in Hong Kong. Some initial thoughts after skimming its prospectus.
The characteristics of the business
- Heavy upfront/on-going investment in PP&E for logistics network and operating assets (a real asset & operation play)
- On-going investment in R&D for operating efficiency and capability (tech-driven)
- Labor intensive which might be a source operating leverage
- Supply chain know-how and networks for different verticals
- Physical network effect which takes time and capital to replicate
- Investment in PP&E generally yields a reasonable return and investment in R&D will translate into operating leverage and/or maintenance of competitiveness
- A strategic asset in JD.com’s ecosystem
This is a scale business and the market of integrated supply chain logistics services in China is very fragmented. JD Logistics, being the number one player, only had 2.2% market share in 2019. I think the focus on will be on steady state estimation of the company, industries, and macroeconomy. It looks like a nice asset for long term investors (as long as the price makes sense for a satisfactory IRR). Let’s revisit this after it passes the hearing.
Yui Nausicaa 