Breakingviews – JD’s hyped-up spinoffs leave its basket light


A JD.com Logistics self-driving truck is displayed at China International Fair for Trade in Services in Beijing, China, May 28, 2019. REUTERS/Jason Lee

HONG KONG (Reuters Breakingviews) – JD.com might look slightly unloved after completing its hyped-up spinoffs. The Chinese web retailer’s market cap has more than doubled to $117 billion this year. That has been helped by expectations for listings of its health, financial technology and logistics units which might account for almost half of JD’s equity value. The downside is it prices up a so-so worth for its outperforming e-commerce business.

Shares of New York-listed JD are up 116% in 2020, smashing the gains of the S&P 500 and most Chinese technology peers including e-commerce rival Alibaba. A secondary Hong Kong listing in June helped, as has the company’s Amazon-like pandemic-resilient business. Investors are also pricing in boss Richard Liu’s more exciting ventures in financial technology and healthcare.

JD Digits, the 37%-owned affiliate that specialises in consumer credit and supply-chain financing, has filed to raise 20 billion yuan ($2.9 billion) in Shanghai by selling 10% of its enlarged share capital. Meanwhile, JD recently confirmed plans to list its e-pharmacy in Hong Kong, and is targeting a $20 billion valuation, Refinitiv publication IFR says. JD’s promising logistics arm might be next too. The company has already tapped banks for an up to $10 billion IPO that could value the subsidiary at over $30 billion, Reuters reported in December, citing sources.

JD’s stakes in the three businesses could be worth $53 billion combined, based on the mooted valuations. What’s left, after backing out the group’s $8 billion-plus net cash pile, is JD’s core business. Analysts at HSBC reckon the segment will generate roughly $3 billion in adjusted earnings next year. That implies investors are valuing the rump, JD Retail, at 17 times forward earnings – a discount to Alibaba’s 23 times multiple, Refinitiv shows.

It looks especially light because it implies no value for the minority stakes JD holds in companies including UK-based deluxe clothing website Farfetch and Chinese supermarket chain Yonghui Superstores. Moreover, JD’s e-commerce business – more capital intensive and costly than Alibaba’s – has outperformed rivals during the pandemic and is improving its profitability. Liu needs to ensure his new outlets don’t leave the main shop window looking tired.

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