JD.com, which is enthusiastic about going public through a spin off, is pushing JD Industrial to go public in Hong Kong.
After a year and a half, JD.com resumed its Hong Kong IPO on September 30th. As the largest participant in China's MRO procurement service market, JD Industrial has become an independent business unit of JD Group since 2017. Due to the rapid growth of the company's performance, as a member of JD's capital map, JD Industrial is also highly sought after by capital, raising a total of about 635 million US dollars in about three years.
Splitting JD Industrial and going public is only an important step for JD to build its capital map. In recent years, JD.com has owned listed companies such as JD Group, JD Health, JD Logistics, and Dada Group, as well as companies such as JD Production and Development and JD Technology that have previously planned to go public.
JD Industrial restarts Hong Kong IPO
On September 30th, JD.com once again submitted its prospectus to the Hong Kong Stock Exchange, intending to list on the main board, with Bank of America, Goldman Sachs, and Haitong International serving as joint sponsors. As early as March 30, 2023, JD Industrial submitted its prospectus to the Hong Kong Stock Exchange for the first time.
According to the prospectus, JD Industrial is an industrial supply chain technology and service provider, providing customers with industrial product supply and comprehensive digital solutions and services through a digitalized industrial supply chain infrastructure. Simply put, JD Industrial provides connectivity services for both the supply and demand sides, including product standardization, scientific inventory management, and digital procurement.
Since 2017, JD Industrial, as an independent business unit of JD Group, has focused on supply chain technology and service business for MRO (usually referring to non production raw material industrial supplies) procurement services. After years of development, JD Industrial has become the largest participant in China's MRO procurement service market.
According to Zhuoshi Consulting, based on transaction volume, JD Industrial will rank first in the domestic MRO procurement service market in 2023 (twice the size of the second place), and is also the largest service provider in China's industrial supply chain technology and service market, with a share of about 4.1%.
At present, JD Industrial's revenue sources are divided into two categories: goods and services revenue. Among them, the main source of revenue for JD Industrial is the sales revenue of industrial products, including general MRO products, specialized MRO products, and BOM products, which account for over 90% of the revenue. In addition, service revenue mainly includes commissions and platform usage fees charged to third-party merchants on the trading platform, advertising service fees charged to advertisers, and service fees charged to technical and other service customers.
From 2021 to 2023, JD Industrial's performance has grown rapidly, with operating revenues of 10.345 billion yuan, 14.141 billion yuan, and 17.346 billion yuan, respectively, with a compound annual growth rate of 29.4%; The company's adjusted net profits were 441 million yuan, 766 million yuan, and 900 million yuan, respectively, with a compound annual growth rate of 42.9%.
In the first half of this year, JD Industrial's operating revenue increased from 7.2 billion yuan in the same period of 2023 to 8.6 billion yuan, a year-on-year increase of 20.3%; The company's adjusted net profit also increased from 410 million yuan to 510 million yuan, a year-on-year increase of 24.6%.
However, a slight decline in gross profit margin is also a challenge faced by JD Industry. From 2021 to 2023, JD Industrial's gross profit margins were 18.6%, 18%, and 16.1%, respectively. In the first half of 2024, the company's gross profit margin was 16.9%, compared to 17.8% in the same period last year. The gross profit margin of JD Industrial is mainly affected by commodity income, with a gross profit margin of only 11% in recent years, while the gross profit margin of service income during the same period was as high as 96%.
Backed by the JD system, JD Industrial is highly sought after by capital, with a cumulative fundraising of approximately 635 million US dollars in about three years.
In August 2020, JD Industrial, GGV, Sequoia China, and CPE completed Series A preferred stock financing, raising approximately $230 million. Subsequently, in January 2021, JD.com, along with Domking and GGV, completed Series A-1 preferred stock financing, raising approximately $105 million. In March 2023, JD Industrial completed a Series B preferred stock financing with investors such as Mubadala, 42XFund, M&G, BPEA EQT, and Sequoia China, with a post investment valuation of approximately $6.7 billion, and a total transaction amount of $300 million.
In this IPO, the funds raised by JD Industrial will be used to further enhance its industrial supply chain capabilities, expand its business across regions, make potential strategic investments or acquisitions, as well as for general company purposes and operating capital needs.
The constantly expanding JD territory
As an independent business of JD Group since 2017, the development of JD Industry still relies on JD's support.
In 2021-2023 and the first half of 2024, JD Industrial's revenue from the JD Group platform (including service revenue and revenue from JD Hardware City) was 5.04 billion yuan, 6.66 billion yuan, 7.52 billion yuan, and 3.66 billion yuan, respectively, accounting for 48.7%, 47.1%, 43.4%, and 42.5% of the group's revenue for the same period.
JD Industrial also admitted in its prospectus that its business utilizes and closely cooperates with JD Group's platform, including the extensive services, technology, and traffic support provided by JD Group to promote the online sales and marketing of its products and services.
When it first went public in Hong Kong last year, the China Securities Regulatory Commission issued supplementary materials for listing filing to JD.com in April 2023, requiring it to explain its independence, agreement control structure, main operating entities, changes in equity, and the use of raised capital.
According to the prospectus, prior to the IPO, JD Group held approximately 77.32% of the total issued share capital of JD Industrial through its wholly-owned subsidiary; Founder of JD.com, Liu Qiangdong, through Maxi& PLimited holds 3.71% of the shares.
As the chairman of the board of directors, Liu Qiangdong has basically retired to the second line. The actual person in charge of JD Industry is Song Chunzheng, who currently serves as the company's executive director and CEO. He joined JD Group in 2013.
The spin off and listing of JD Industrial is a corner of JD Group's capital map. On the same day that JD.com Industry first disclosed its prospectus for listing in Hong Kong, another company under JD.com Group, JD.com Development, also submitted a prospectus to the Hong Kong Stock Exchange, but there has been no further progress so far.
According to the data, JD Group officially entered the e-commerce field in 2004. In May 2014, JD Group was officially listed on the NASDAQ stock exchange in the United States, becoming the first comprehensive e-commerce platform in China to successfully go public in the United States. In June 2020, JD Group went public for the second time on the Hong Kong Stock Exchange, raising funds to invest in key technology innovations based on the supply chain, in order to further enhance user experience and improve operational efficiency.
Starting from 2020, JD.com entered the IPO harvest period. In June 2020, Dada Group landed on NASDAQ in the United States, becoming the "first stock of instant delivery". At that time, as Dada Group's largest shareholder and IPO cornerstone investor, JD Group held a high 47.4% stake. Currently, JD.com holds 63.24% of the equity of Dada Group.
In addition, in December 2020, JD Health was listed on the Hong Kong Stock Exchange, and in May 2021, JD Logistics also successfully went public in Hong Kong. At the same time, JD.com also disclosed its IPO prospectus for the Science and Technology Innovation Board in September 2020, but withdrew its listing application the following year. Subsequently, JD.com announced the integration of its cloud and AI businesses with JD Digital, officially establishing JD Technology. At the end of January 2022, JD.com submitted its first application for overseas listing, but no further developments have been made.