BEIJING/HONG KONG — JD Health International shares soared 56% on their first day of trading in Hong Kong on Tuesday, reflecting investors’ strong interest in China’s online health care sector which has been given an extra lift from the COVID-19 pandemic and government reforms.
Shares of JD Health, a unit of JD.com, China’s second-largest e-commerce group by revenue, surged as much as 76% at one point to HK$123.90 from their initial public offering price of HK$70.58. The shares closed up 56% at HK$110.
The debut, Hong Kong’s largest IPO so far this year, netted JD Health $3.5 billion. The company’s market value topped $44 billion at the close of Tuesday trading.
Online health care came under the spotlight earlier this year when the pandemic-induced lockdown in China caused disruptions to many people who needed medical attention at a time when hospitals were constrained by a lack of resources.
Considered a relatively new service that sprang out of China’s bustling e-commerce mobile platforms, trailing ride-hailing and travel bookings, online health care connects patients to medical experts 24 hours a day, seven days a week, helping to close the gap in China’s uneven health care infrastructure. China’s better big-city hospitals are often overcrowded, as they attract patients from rural areas seeking higher quality care.
The online health care marketplace, which includes consultation, drug delivery, insurance and advertising, is expected to grow to 87.6 billion yuan ($13.4 billion) by 2023, up from 27.1 billion yuan in 2019, according to Beijing-based iResearch.
JD Health joins competitors — including Ping An Good Doctor, a unit of Ping An Insurance Group, and WeDoctor, backed by Tencent Holdings — in the growing market, which is changing rapidly in terms of services and the regulations that govern them.
“Counting on the listing, we will wholly push out higher quality, efficient, convenient and easier access to offer more affordable health care products,” Xin Lijun, JD Health’s chief executive, said Tuesday.
More than 846,000 valid applications came in for bids, equal to 421.91 times the number of shares on offer in the retail portion of the IPO, forcing the company to claw back shares from the institutional portion and increase allocation to mom-and-pop investors, the company said in a filing to the stock exchange on Monday.
Retail investors were allocated 11% of the total offering, compared with 5% originally. Institutional investors put in bids equal to 31.1 times the amount of shares on offer, the company said.
JD.com also is considering a Hong Kong IPO next year for its logistics unit that could raise about $5 billion, according to a person familiar with the matter. Financial services affiliate JD Digits filed a prospectus in September for an IPO on Shanghai’s STAR Market. Progress has been delayed due to regulatory changes that also derailed Ant Group’s IPO in November, the person said.
Established in 2014 and offering over-the-counter drugs as part of parent JD.com’s e-commerce marketplace, JD Health only began health consultation through a specialized mobile app after being licensed in March 2018.
JD Health had active annual users of 72.5 million as of June 30, served by 138 in-house doctors and more than 21,000 contract-doctors based in hospitals across the country, according to its prospectus.
JD Health generated 87.6% of its revenue in the first half of 2020 from online retail pharmacy and health care services, including consultations, prescription renewals and chronic disease management.
The company’s revenue for the first six months of the year climbed 76% to 8.78 billion yuan, according to its prospectus. Profit excluding the impact of fair-value changes of convertible preferred shares and nonrecurring items rose 46% to 370.8 million yuan.
It plans to use 40% of the proceeds from the IPO for business expansion, 30% for research and development, 20% for potential investment and the remaining for working capital and general corporate purposes.
As the largest online drug retailer in China, JD Health hopes to tap into the pharmaceutical supply-chain market in hospitals and some 450,000 pharmacies, offering services that have yet to be digitalized completely.
“We need to connect into these pharmacies’ system and help them to expand coverage,” Xin said. “Such investment will not be small.”
Even though China’s medical standards have improved over the years, it still is lacking in technical and cutting-edge research, according to JD Health. “We are willing to work with Japanese pharmaceutical maker Eisai, a global leader in dementia drugs, in drug research and development,” he said.
The ease of getting medical advice online, in particular during the lockdown earlier this year, has drawn new users like Fu Xinyi in Suzhou to JD Health.
“What began as a trial out of curiosity has become a reliable platform to seek medical advice for myself and family now,” said Fu, a housewife who has used the JD Health app for advice on a backache and for drug delivery.
“Most of the inquiries we receive are for chronic diseases, including high blood pressure and diabetes,” said Wang Chunye, an in-house doctor at the company’s headquarters in Beijing.
While most of the consultations are offered free of charge, some follow-up cases involving specialist doctors are chargeable.
“The charge can be cheaper online in some cases,” said Wang, adding that JD Health also offers home-visitations when a diagnosis cannot be carried out online, such as drawing blood for further tests.
While the government has introduced regulations to promote online health care, such as encouraging medical institutions to digitize medical information, it has yet to allow the use of national insurance, curbing wider acceptance of the service.
Even so, a shift in consumer behavior toward online health care platforms will potentially make it one of the largest areas of growth in the health care sector, according to a July report by business consultant Dezan Shira & Associates.
“With the coming adoption of 5G and the Internet of Things, support for digitized health care and telemedicine will continue to be a point of emphasis for government planners in the coming years,” the report said.