HONG KONG -- JD Logistics rose as much as 18% in its debut Friday, providing relief for a Hong Kong new listings market that had started to show signs of fatigue.
Shares of the logistics unit of Chinese e-commerce major JD.com closed at HK$41.70 after rising as high as HK$47.75 in early trade. The stock had opened at HK$ 46.05, up from an issue price of HK$40.36. Hong Kong's Hang Seng Index ended little changed.
The initial public offering raised $3.16 billion, making it Hong Kong's second-largest IPO so far this year.
Hong Kong's new listings market has shown signs of cooling after its best start ever to a year. Nearly $25 billion has been raised to date, eight times the IPO total at this time in 2020.
"It is difficult for JD Logistics, with market value of over $20 billion, to have a dramatic rise," said Kenny Ng, a strategist at brokerage Everbright Sun Hung Kai in Hong Kong. "JDL is not a pure tech share and the business is mainly about logistics. I expected a 20% increase in its stock price, but now it is relatively disappointing at around 10%."
The JD Logistics opening should encourage hopes for other Chinese technology companies preparing to sell shares in the city including ride hailing leader Didi Chuxing and game developer NetEase's music unit Cloud Village. U.S.-listed companies including Vipshop and Tencent Music Entertainment are looking at Hong Kong offerings to acquire secondary listings in the city.
JD Logistics attracted strong bids from investors, with the retail portion collecting orders for 716 times the shares on offer and the institutional portion 10.8 times. The 1.36 million retail applications received represent almost one in five Hong Kong residents.
Despite the heavy subscription interest, JD Logistics priced its shares close to the low end of their marketed range. The company, aware of investor concerns about the sector with competitors posting losses, decided to keep its valuation expectations under check, a source said during the determination of the final pricing.
Twelve of the 17 companies that have listed on the Hong Kong exchange since March 1 are trading below their issue price.
JD Logistics' issue price gives the company a valuation of $31.6 billion, compared with pre-IPO expectations of around $40 billion. The offering drew SoftBank Vision Fund, Singapore government fund Temasek and five others as cornerstone investors.
At the same time, China Eastern Airlines is moving closer to listing its logistics subsidiary on the Shanghai Stock Exchange. Payments for shares in Eastern Air Logistics' 2.4 billion yuan ($376.9 million) IPO are due Friday, though no date for trading has been set.
Eastern Air Logistics net profits rose threefold last year from 2019 to 2.36 billion yuan as revenues rose 34% to 15.11 billion yuan, according to its prospectus. Proceeds of the offering will be used for building and upgrading infrastructure, including a new comprehensive air cargo logistics center at Pudong International Airport in Shanghai.
The results of the IPO are likely to affects plans by China Eastern rivals China Southern Airlines and Air China to proceed with their own logistics spinoffs.
China Eastern brought in outside investors led by Lenovo parent Legend Holdings in 2018 as part of a government program known as "mixed ownership reform." Legend's stake will slip to 18.1% after the IPO.
JD Logistics becomes the third group company with shares traded in Hong Kong. JD.com itself raised $4.5 billion last June while acquiring a secondary listing in Hong Kong to add to its primary one in New York. JD Health raised $3.9 billion in a December IPO.
The company started in 2007 as the in-house logistics unit of JD.com. According to its IPO prospectus, the share of JD Logistics' revenue coming from its parent fell to 53.8% in 2020 from 70.1% in 2018, though the volume of such transactions continued to grow, reaching 39.4 billion yuan last year.
Chief Executive Yu Yui told reporters Friday that the company will continue to grow sales to other customers at "high speed."
JD Logistics expects a higher net loss in 2021 due to accounting changes, increased expenses and reduced gross margins, the prospectus said. The company's net loss widened to 4 billion yuan in 2020 from 2.2 billion yuan a year earlier.
The company plans to use proceeds from the IPO to upgrade and expand its network and develop its technology.
"The company will continue to invest in cross-border logistics and also focus on helping Chinese brands go overseas," Yu said, with particular attention to North America and Europe.
Additional reporting by Kenji Kawase, Stella Wong and Cora Zhu in Hong Kong