JD Health shares surge 34% on their market debut in Hong Kong – CNBC

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A woman stands next to signage incorporating the logo of JD.com, and the company’s mascot ‘Joy,’ at the company’s headquarters in Beijing, China.

Qilai Shen | Bloomberg | Getty Images

GUANGZHOU, China — Shares of JD Health, the health-care arm of Chinese e-commerce giant JD.com, surged on their debut in Hong Kong.

JD Health issued 381.9 million shares pricing them at 70.58 Hong Kong dollars each. Those shares were trading at 94.5 Hong Kong dollars at the market open. That is 34% higher than their offering price.

Shares rallied throughout the day, hitting an intra-day high of 109.5 Hong Kong dollars, up 55% from the offer price.

The company said net proceeds from the initial public offering (IPO) were 26.46 billion Hong Kong dollars ($3.41 billion).

JD Health’s shares were priced at the top end of the 62.8 Hong Kong dollars to 70.58 Hong Kong dollars marketed to investors, CNBC previously reported.

The investment banks could decide to exercise the so-called over-allotment option whereby 57,285,000 more shares would be issued. That would result in an additional 3.98 billion Hong Kong dollars being raised from the IPO. The over-allotment must be exercised by Dec. 31.

Business growth plans

JD Health said 40% of the net proceeds will go toward business expansion over the next 3 to 5 years, 30% will be used for research and development in the next 2 to 3 years, while the remaining money will be spent on potential investments, acquisitions and general corporate purposes.

The company’s business is focused on online health-care services such as consultations with doctors, as well as its online pharmacy. JD Health brought in revenue of 8.78 billion yuan ($1.34 billion) in the six months ended June 30, up from 4.99 billion yuan in the same period last year.

Citing a Frost & Sullivan report, the company claimed in its prospectus that it is the largest online health-care platform in China by revenue in 2019.

CEO Xin Lijun declined Tuesday to say whether the company would be able to retain that position. He emphasized the company’s focus is on improving user experience, from which revenue would naturally follow.

“The Chinese health-care and medical industry is like playing ‘Go,'” Xin said, according to a CNBC translation of his Mandarin-language remarks made during a briefing with reporters in Beijing. He was referring to an ancient board game in which two players compete to gain the most territory.

China’s health-care industry is difficult for start-ups to navigate. The government is heavily involved in providing medical care and runs mass insurance programs for reimbursing patients.

“It is not a market-based scenario,” Xin said, noting that it limits the areas in which start-ups can operate, and that every business unit has its unique challenges. “Of course, in theory, our biggest challenge is getting more customers to know about JD Health’s services, and integrating online health care better with offline services.”

Xin said JD Health might invest in offline drugstores and work more with overseas health-care organizations.

JD Health’s listing is another major win for the Hong Kong stock exchange which has seen major Chinese firms head there to raise money. JD Health’s parent company, JD.com, carried out a secondary listing in Hong Kong in June. Another Chinese internet firm NetEase also pulled off a secondary listing in Hong Kong that same month.

China’s technology giants have sharpened their focus on digital health care following the coronavirus outbreak earlier this year. Internet search giant Baidu is in discussions with investors to raise up to $2 billion over three years for a new biotech company, CNBC reported in September.

JD.com will remain the controlling shareholder of JD Health even after the IPO. There are a number of so-called cornerstone investors that were brought on board including Hillhouse, Tiger Global, Lake Bleu Prime, China Structural Reform Fund, Blackrock and Singapore’s sovereign wealth fund GIC.

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