Disrupter courier J&T Express details HK IPO

By BAI Fan

J&T Express, the troublemaking courier that threw the delivery market into a nonstop price war, published its prospectus on June 16, confirming an imminent Hong Kong IPO.

The funds raised will be used principally to increase the range of J&T’s delivery coverage and enter new markets. There are also plans to build warehouses.

From strength to strength

The logistics company planned to go public on Wall Street last year, but the deal was canceled due to “volatile market conditions.”

It was reported in April that the company aimed to raise around US$1 billion by going public in Hong Kong. The prospectus, however, does not make any mention of a fundraising goal, only suggesting that the valuation of the company will be around HK$80 billion (US$10 billion, 73 billion yuan).

Founded in Indonesia in 2015 by Chinese entrepreneurs Jet Lee and Tony Chen, J&T Express entered China in 2020 when it acquired Longbang Express, along with its operating license. Another acquisition took place in 2021, this time swallowing whole the main competition, Best Express. That deal meant J&T Express was able to improve its coverage by an order of magnitude.

With a very strong base in Indonesia, a country that is home to almost half the ASEAN population, J&T now controls an enormous 22.5 percent of the market in Southeast Asia – three times more than the second biggest. The courier also controls more than 10 percent of deliveries in China.

Balancing past losses, future profits

Starting from scratch three years ago, revenue in China last year passed US$4 billion (28 billion yuan). That’s 56 percent of J&T’s total US$ 7 billion taken last year. The whole of Southeast Asia, including stronghold Indonesia, contributed only US$2.5 billion, a third of the total.

Income may be healthy enough, but what comes flooding in, flows out almost as quickly. Operating losses of US$1.4 billion last year were twice as much as those in 2020.

J&T Express attributes the loss to its quick expansion. All losses since 2020, in fact, have been incurred in China. The company’s main – perhaps only strategy – is to operate at a loss in order to gain market share. One of the difficulties of such a strategy is that as volume increases, losses are liable to spiral out of control.

High cost of guerilla price war

At the height of the price war, J&T’s guerilla campaign was charging only US$0.23 per package, packages that cost the company US$0.51 to deliver - losses that have to be made up by future deliveries: future profitable deliveries.

J&T Express was fined in 2021 for disrupting the market, and since then the company has continued to make losses, but the figures are much less punishing on the opposition.

The whole express industry, however – perhaps the most vital cog in the entire e-commerce machine - is still a long way from previous profitability, and still stymied by J&T’s truculence. J&T’s average price in China was only US$0.34 in 2022, less than a third of what it can charge in Southeast Asia.

The disturbing, disruptively quick rise of J&T Express is often attributed to its close ties with Pinduoduo. This must be balanced against a slightly problematic relationship with Alibaba.

Friends all over the world

When J&T showed up in the marketplace, established couriers did everything they could to block it from doing business with the e-commerce superpower. J&T’s relationship with Alibaba warmed up a little after its acquisition of Best Express, but it’s still not especially cozy in China.

Overseas, however, J&T now takes orders from a host of Alibaba-affiliated e-commerce companies including Lazada and Tokopedia. Still, J&T’s biggest client, the group contributed 17 percent of total revenue in 2022, half of 2021’s 35 percent, but that is more about other expansion than any contraction on the Alibaba side.

J&T Express set up operations in the Middle East and Latin America in 2022 and has been pouring funds into its public profile in these new markets, while investing heavily in its image in China. Lionel Messi has been signed up as brand ambassador, and he doesn’t come cheap, though it’s a very smart move toward conquering South America. J&T also became the first courier to sponsor of the state broadcaster CCTV’s ever-popular New Year Gala.

And the pace of deal making hasn’t slacked off.

Taking to the air on borrowed wings

J&T acquired Fengwang Express last month, a subsidiary of its largest Chinese competitor SF Express, for 1.2 billion yuan. Fengwang was founded in September 2020, specifically to compete with newly-arrived J&T.

When J&T first entered China, it was almost impossible to build a business from the ground up so the absorption of Best Express quickly doubled J&T’s package volume. The merger with Fengwang with its 1,700 delivery stations nationwide is a similar strategy.

Then news came that SF Express bought 1.5 percent of J&T Express. Industry insiders believe that J&T Express, lacking air cargo capacity, will borrow SF Express’s, while the latter has probably found J&T’s Southeast Asia network attractive in its overseas expansion.