Stock market investors do not look to teenagers for insight. An IPO in Hong Kong may change that.
Last month, J&T Express filed for an IPO on the Hong Stock Exchange. Bloomberg reports that it could raise over US$1 billion ($1.3 billion). This would make it the largest IPO in Hong Kong this year.
J&T Express is a delivery company headquartered in Indonesia. With its trucks delivering over 40 million packages a day, it is Southeast Asia’s No 1 express delivery player today. Its red trucks are a familiar sight across the region.
The company’s delivery times are fast. It can deliver a package in Jakarta within 12 hours. This is no mean task. It can take up to a day just to travel within Jakarta.
The company’s ascent has been just as swift. It was started in 2015 by a pair of smartphone executives, Tony Chen and Jet Lee.
The founders saw a gap in the demand for delivery services in Indonesia. The country — a vast archipelago of 18,110 islands — was neglected by delivery giants such as United Parcel Service (UPS). Express delivery was expensive and inconvenient.
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Chen and Lee may have learnt from James Casey, the UPS founder. Casey set up a delivery company called American Messenger Co in 1907 at the age of 19. This was long before Seattle became the headquarters of Amazon and Microsoft.
Seattle was already a bustling port. It was near the mining centre. Seattle was the closest American port to Asia.
Casey had uncommon foresight for a teenager. He figured that department stores would need parcels to be delivered urgently. Seattle’s stores had affluent customers, who often required suits and hats at short notice. The stores did not have the means to deliver packages, and the postal service took four days.
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American Messenger Co started with six delivery boys, two bicycles and a telephone. The original headquarters was the basement of a saloon.
The company had modest origins but lofty aims. Its motto was to offer “the best service and the lowest rates”. It was cheaper than other delivery services, and always truthful about delivery times. This was unusual in those days, as it is today.
Casey’s hard work and honesty drove the business. He renamed the company UPS in 1919.
Today, UPS is a sprawling corporation. It delivers six billion packages a day to 220 countries. Its infrastructure has gone far beyond the two bicycles. It has a fleet of 500 planes for express delivery.
J&T Express has replicated Casey’s strategy in the Asean region. In 2015, when express delivery was unreliable in Indonesia, the founders recognised the potential for e-commerce. Online shoppers would want rapid delivery.
E-commerce has blossomed in Asean in the last eight years. The size of the e-commerce market has risen 18-fold to US$100 billion.
This may be just the beginning. In the West, e-commerce usage is an alternative to conventional retailing. Shopping on Amazon is a cheaper option compared to using Walmart.
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In this region, using Shopee or Lazada to purchase clothing is the first retail experience for many people. Indonesia’s far-flung regions have limited conventional retail choices. There are few shopping malls in Sumatra outside Medan. Using an e-commerce platform is the sole option.
J&T Express has an opportunity to benefit from the e-commerce trend. While Shopee and Lazada have their own delivery trucks and personnel, newer entrants like TikTok will need to use J&T Express.
TikTok is rapidly rising in Asean e-commerce. TikTok is a dance video platform whose core customers are teenagers. In 2022, it entered e-commerce, allowing viewers of the dance videos to shop with a single click.
Shopping through TikTok has been an instant hit in Indonesia. TikTok may have a tenth of the Asean e-commerce market. This ratio could rise to a quarter in two years.
At present, TikTok’s e-commerce is restricted to a small range of items. The typical purchases in Indonesia are head scarves or lipstick. J&T Express may benefit as the product range widens.
J&T Express revenue has quadrupled to US$7.3 billion between FY2020 and F20Y22, powered by the pandemic. If one assumes 30% growth annually, it could reach US$12 billion revenue in FY2024.
The IPO could be priced according to the peer average. J&T Express may be the opportunity that investors should dance to.
Nirgunan Tiruchelvam is head of consumer and Internet at Aletheia Capital and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in this column. This column does not constitute investment advice of any kind
