Where next for the JD.com share price following Hong Kong debut?
China’s second largest online retailer raked in nearly US$4 billion on its first day of public trading in Hong Kong.
China e-commerce company JD.com raised nearly US$4 billion on the first day of its public offering on the Hong Kong bourse.
On Thursday 18 June 2020, the second largest online retailer in China – behind only Alibaba Group Holding, saw its shares rise nearly 6% above its opening price of HK$239 (US$30.84) a share within minutes of being launched.
This makes JD.com the second largest flotation on the Hong Kong Exchanges and Clearing Limited this year. The largest listing this year belongs to the Beijing-Shanghai High Speed Railway, which brought in US$4.3 billion in January.
How does JD.com’s Hong Kong share sale rank next to recent flotations?
As at 12:00 HKT on Friday 19 June, JD.com’s Hong Kong shares are trading at HK$234 (US$30.20) per share – flat from launch day’s closing mark.
For comparison, the group’s American depository share (ADS) price opened and closed at US$60.79 on Thursday.
JD.com’s Hong Kong launch price also represents an upside of 53.4% from its debut offer rate of US$20.10 on the US stock market back in May 2014.
To further indicate where the company's starting valuation stands among recent IPOs, Alibaba’s Hong Kong offering last November raised some US$13 million, when over-allotment are also factored in.
This listing follows Chinese gaming firm NetEase’s listing last week, which raised a respectable US$2.7 billion. NetEase is the world’s second largest gaming company – behind only Tencent Holdings.
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Where do analysts envision JD.com’s share price going next?
However, IG Australia market analyst Reo Liao on Friday remarked that Alibaba’s price-to-earnings (P/E) ratio at 38 points is much higher than JD.com’s P/E ratio of around 24. This indicates that the former’s stocks are either overvalued, or that the latter’s securities are underpriced.
While it is hard to make estimates in present kangaroo market conditions – on top of the fact that there are no prior price trends to refer to for the Hong Kong listing, Liao believes that it is precisely because of the firm’s P/E ratio that further upsides might be in store for the stock in the near-term.
He also cited the company’s fundamentals – operating and non-operating – as another determinant of the stock’s potential price rally.
Firstly, he noted that non-operating losses in the form of investment losses, which had dragged down Q1 net profits, should also decline as market conditions improve.
Next, he pointed out that the company’s sales figures for consumer discretionary products – non-essential items – should also increase in the second quarter ending June 2020, with lockdown restrictions now eased domestically.
What are the specifics of the Hong Kong public sale?
JD.com had initially priced its Hong Kong equities at a maximum rate of HK$236 (US$30.45) per share.
A total of 133 million shares were issued as part of this secondary sale – with 95% of shares reserved for overseas investors, and the remaining 5% going to Hong Kong residents.
The company had stated that it plans to pump the raised capital into improving supply chain technology and operating efficiency.
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