JD Digits hopes to ride on Ant's IPO excitement

Hong Kong

THE fintech affiliate of Alibaba's e-commerce rival JD.com hopes to ride a wave of investor excitement over the pending debut of rival Ant.

JD Digits, formerly JD Finance, aims to raise US$3 billion to fund its core finance businesses, plus fund ventures into pig-face recognition for agriculture, cloud computing and smart-city solutions. This is a different creature from Jack Ma's operation, and a prospectus rife with buzzwords cannot hide volatile performance and internal clashes.

JD Digits' credit businesses, which generate slightly less than half of revenue, look like Ant's. But despite its parent's big database of shoppers and merchants, it is a smaller, more diversified operation, advertising a grab bag of side businesses with big-data cryptonyms like "phecda" and "Themis".

Diversification does not appear to have paid off. Where Ant's net profit rose over 10 times year on year to hit 21.9 billion yuan (S$4.4 billion) in the H1 2020, JD Digits earned only 387 million yuan, excluding share-based compensation; on an unadjusted basis, it lost nearly 700 million yuan.

In addition, talent turnover suggests worrying internal divisions. Over 10 senior executives have left since 2019, say local media reports and industry sources. Vice-president Li Shangrong, a former banker who ran JD Digits' corporate and rural finance operations, lasted just a year.

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The price does not look right either. The company aspires to a US$30 billion market value, equivalent to 200 times adjusted 2019 earnings. This is more than Ant is likely to get, and more than twice as expensive as Paypal. The value might look more reasonable if profits were on the up, but recent lurches make a growth rate hard to project.

JD Digits is aiming to list on Shanghai's STAR board, where triple-digit ratios are not unheard of. The board also allows dual-class shares that will let JD.com boss Richard Liu and associates retain 75 per cent of voting rights. Even so, the median forward PE on the STAR 50 index is around 58 times earnings, says Refinitiv. To deserve that, the company must more than triple 2019 earnings this year.

This IPO will test if mainland traders can tell an Ant and other insects apart. REUTERS