Equity Research in HK and Mainland China

Li Tang

Equity Bottom-Up

Alibaba Group Holding  / Equity Bottom-Up

<p>The PBOC, CBIRC, CSRC, and SAFE summoned Ant Group for a second joint meeting, ordering the fintech giant to rectify its business operations so that it is compliant with regulations and law. This also includes serving the real economy and supporting national development strategies.</p>

The PBOC, CBIRC, CSRC, and SAFE summoned Ant Group for a second joint meeting, ordering the fintech giant to rectify its business operations so that it is compliant with regulations and law. This also includes serving the real economy and supporting national development strategies.

PBOC Summon Ant Group On Restructuring Once More

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

<p>PBoC (People's Bank of China) said on Monday that a "comprehensive, viable rectification plan" for Ant Group had been agreed to and Ant Group will overhaul its business in compliance with higher regulations for Internet finance platform companies.  As a result, Ant Group will apply to become a financial holding company. </p><p>Similar to the AML fine on Alibaba, we believe this directive will now allow Ant Group to move forward possibly with a slightly lower valuation but share overhang lifted.  At the same time, I believe the market will be relieved to hear the regulator's carefully crafted supportive tone towards the Internet platforms.   </p><p>Impact: </p><ul>
<li>The impact on <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> is nominal, in my view.  Alibaba owns 33% of Ant Group.  With the market already having priced-in a bear case scenario, we believe this news has minimal impact on Alibaba's valuation.  </li>
<li>I believe the market already valued Ant Group at USD170-180 billion after the failed IPO.  This news does not change the valuation significantly.  </li>
</ul><p>Implications: </p><ul>
<li>As a holding company, Ant will be subject to higher capital requirements.  But the market is well aware of this already.  <strong>(Please see our report, <a href="https://www.smartkarma.com/insights/alibaba-baba-us-ant-group-woes-overly-priced-in" target="_blank" data-smartkarma-citation="insights:48648" rel="noopener">Alibaba (BABA US): Ant Group Woes Overly Priced-In</a>, dated 27 February 2021)</strong>
</li>
<li> Ant will have to reduce the liquidity risks of its investment products including the InsureTech products and specifically rein-in the AUM of Yue'bao, its money-market mutual fund.  <em><strong>This was broader than expected.  It is difficult to imagine how to stop consumers from selecting an investment product. </strong></em> </li>
<li>Set up a consumer credit reporting company and strengthen the protection of personal information.  </li>
</ul>

PBoC (People's Bank of China) said on Monday that a "comprehensive, viable rectification plan" for Ant Group had been agreed to and Ant Group will overhaul its business in compliance with higher regulations for Internet finance platform companies.  As a result, Ant Group will apply to become a financial holding company. Similar to the AML fine on Alibaba, we believe this directive will now allow Ant Group to move forward possibly with a slightly lower valuation but share overhang lifted.  At the same time, I believe the market will be relieved to hear the regulator's carefully crafted supportive tone towards the Internet platforms.   Impact: 
The impact on Alibaba Group (BABA US) is nominal, in my view.  Alibaba owns 33% of Ant Group.  With the market already having priced-in a bear case scenario, we believe this news has minimal impact on Alibaba's valuation.  
I believe the market already valued Ant Group at USD170-180 billion after the failed IPO.  This news does not change the valuation significantly.  
Implications: 
As a holding company, Ant will be subject to higher capital requirements.  But the market is well aware of this already.  (Please see our report, Alibaba (BABA US): Ant Group Woes Overly Priced-In, dated 27 February 2021)

 Ant will have to reduce the liquidity risks of its investment products including the InsureTech products and specifically rein-in the AUM of Yue'bao, its money-market mutual fund.  This was broader than expected.  It is difficult to imagine how to stop consumers from selecting an investment product.  
Set up a consumer credit reporting company and strengthen the protection of personal information.  


Alibaba (BABA US): Ant Group - Pay, Get Out, Move Forward

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
<p>Back on the 1 February, Zhuhai Huafa, wholly-owned by Zhuhai SASAC, entered into a share purchase agreement (SPA) to acquire domestic shares in mobile device manufacturer <a href="https://www.smartkarma.com/entities/beijing-digital-telecom-co-ltd" target="_blank" data-smartkarma-citation="entities:4113:1" rel="noopener">Beijing Digital Telecom (6188 HK)</a> from Di Er Tong and Digital Science &amp; Technology, collectively the controlling shareholders of Beijing Digital.</p>
</div>
<div>
<p>Upon completion of the SPA, Zhuhai Huafa and concert parties would hold 37.99%, triggering a mandatory general offer (MGO). The Offer price will be HK$3.8429 per H-Share, a premium of 7.04% to last close. A concurrent Offer of RM3.2030/share will be made for the domestic shares.</p>
<h3>The New News</h3>
</div>
<div>
<p>The SPA,  which was conditional on, inter alia, SASAC and NDRC approval, together with miscellaneous conditions such as the entering into of loan and concert party agreements, has now <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0407/2021040702361.pdf" target="_blank" rel="noopener">completed</a>. The MGO has subsequently been triggered.</p>
<p>The MGO has a 50% tendering condition - attached to ALL voting rights of Beijing Capital. No irrevocables have been received to date.</p>
<p>The Composite Document is expected to be despatched by the 16 April, at which time the Offer will be open for acceptances.</p>
<p>As always, more below the fold. </p>
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Back on the 1 February, Zhuhai Huafa, wholly-owned by Zhuhai SASAC, entered into a share purchase agreement (SPA) to acquire domestic shares in mobile device manufacturer Beijing Digital Telecom (6188 HK) from Di Er Tong and Digital Science &amp; Technology, collectively the controlling shareholders of Beijing Digital.


Upon completion of the SPA, Zhuhai Huafa and concert parties would hold 37.99%, triggering a mandatory general offer (MGO). The Offer price will be HK$3.8429 per H-Share, a premium of 7.04% to last close. A concurrent Offer of RM3.2030/share will be made for the domestic shares.
The New News


The SPA,  which was conditional on, inter alia, SASAC and NDRC approval, together with miscellaneous conditions such as the entering into of loan and concert party agreements, has now completed. The MGO has subsequently been triggered.
The MGO has a 50% tendering condition - attached to ALL voting rights of Beijing Capital. No irrevocables have been received to date.
The Composite Document is expected to be despatched by the 16 April, at which time the Offer will be open for acceptances.
As always, more below the fold. 









Beijing Digital (6188 HK): Zhuhai SASAC's MGO On Track

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<ul>
<li>State Administration for Market Regulation (SAMR) fined Alibaba RMB18 billion.</li>
<li>Alibaba had forced retailers to leave competitors via an “either-or” choice since 2015.</li>
<li>The penalty amount is not significant to Alibaba.</li>
<li>We believe that the penalty is just part of SAMR’s action after the new law, but not especially against Alibaba.</li>
<li>We do not believe the penalty will impact Alibaba’s long-term value.</li>
<li>We set an upside of 37% and a price target of USD$306 according to the 3-year P/E average.</li>
</ul>
<p>Our previous coverage on Alibaba:</p>
<p><a href="https://www.smartkarma.com/insights/alibaba-baba-many-positive-signals-in-december-quarter-27-upside" target="_blank" data-smartkarma-citation="insights:47726" rel="noopener">Alibaba (BABA): Many Positive Signals in December Quarter, 27% Upside</a></p>
<p><a href="https://www.smartkarma.com/insights/alibaba-baba-this-online-antitrust-wave-a-risk-but-not-a-massacre" target="_blank" data-smartkarma-citation="insights:46377" rel="noopener">Alibaba (BABA): This Online Antitrust Wave, A Risk, But Not A Massacre</a> </p>


State Administration for Market Regulation (SAMR) fined Alibaba RMB18 billion.
Alibaba had forced retailers to leave competitors via an “either-or” choice since 2015.
The penalty amount is not significant to Alibaba.
We believe that the penalty is just part of SAMR’s action after the new law, but not especially against Alibaba.
We do not believe the penalty will impact Alibaba’s long-term value.
We set an upside of 37% and a price target of USD$306 according to the 3-year P/E average.

Our previous coverage on Alibaba:
Alibaba (BABA): Many Positive Signals in December Quarter, 27% Upside
Alibaba (BABA): This Online Antitrust Wave, A Risk, But Not A Massacre 

Alibaba (BABA): Fined $2.78 Billion for “Either Or”, But Impact Is Neither Big Nor Long Term

<p>Chinese regulators announced a record fine for <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> amounting to USD2.75 billion for violations related to antitrust regulations.  While the final amount for the fine was previously unknown, the fine itself is not a surprise.  </p><p>We believe this is a positive outcome for Alibaba: </p><ol>
<li>
<strong>We did not see any hint of additional rectifications</strong> related to AML (Anti-monopoly law) other than the penalty amount. (Alibaba has already pledged to modify its "exclusivity" practice to allow for merchants to have greater freedom to list their products on multiple platforms. <strong>Share overhang related to this issue should dissipate. </strong>
</li>
<li>
<strong>Alibaba could have been penalized more severely</strong> (as much as 10% of its revenues for antitrust violations).  The penalty amount represents only about 3.5% of Alibaba's FY20 revenues (4% of CY2019 revenues).</li>
<li><strong>The lower-than-expected fine amount appears to signal that the regulators are not trying to excessively debilitate the industry.  </strong></li>
</ol><p>We have highlighted the AML and the consumer lending regulation risks to be key share overhang on the BABA shares in our February report, <a href="https://www.smartkarma.com/insights/alibaba-baba-us-ant-group-woes-overly-priced-in" target="_blank" data-smartkarma-citation="insights:48648" rel="noopener">Alibaba (BABA US): Ant Group Woes Overly Priced-In</a>.   We believe BABA shares are undervalued due to the overhang.  The latest regulatory announcement signals the lifting of share overhang related to AML, in our view.  </p>

Chinese regulators announced a record fine for Alibaba Group (BABA US) amounting to USD2.75 billion for violations related to antitrust regulations.  While the final amount for the fine was previously unknown, the fine itself is not a surprise.  We believe this is a positive outcome for Alibaba: 

We did not see any hint of additional rectifications related to AML (Anti-monopoly law) other than the penalty amount. (Alibaba has already pledged to modify its "exclusivity" practice to allow for merchants to have greater freedom to list their products on multiple platforms. Share overhang related to this issue should dissipate. 


Alibaba could have been penalized more severely (as much as 10% of its revenues for antitrust violations).  The penalty amount represents only about 3.5% of Alibaba's FY20 revenues (4% of CY2019 revenues).
The lower-than-expected fine amount appears to signal that the regulators are not trying to excessively debilitate the industry.  
We have highlighted the AML and the consumer lending regulation risks to be key share overhang on the BABA shares in our February report, Alibaba (BABA US): Ant Group Woes Overly Priced-In.   We believe BABA shares are undervalued due to the overhang.  The latest regulatory announcement signals the lifting of share overhang related to AML, in our view.  

Alibaba (BABA US): Record Fine - Grin and Bear It as Better Days Are Ahead

China

JD.com, Inc. is an online direct sales company in China. The Company offers a wide selection of products through its website and mobile applications. JD.com sells appliances, computers, digital products, communication products, garments, books, and household items to consumers and vendors.

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JD.com (9618 HK)

PBOC Summon Ant Group On Restructuring Once More

The regulators' tone suggests they have been unhappy with progress made since their first joint meeting in January.This time the regulators were...

Li Tang

Alibaba (BABA US): Ant Group - Pay, Get Out, Move Forward

Ant Group announced its restructuring plans on Monday. Find out what is the actual impact on Ant Group and Alibaba and how Ant Group's valuations...

Mitchell Kim

Beijing Digital (6188 HK): Zhuhai SASAC's MGO On Track

The Offer price appears fair, with respect to historical trading multiples, and optically. I see a gross/annualised spread of 3%/34.2%. I'd be...

David Blennerhassett

Alibaba (BABA): Fined $2.78 Billion for “Either Or”, But Impact Is Neither Big Nor Long Term

The penalty amount is not significant to Alibaba. We believe the penalty is just part of authorities’ action after the new law, but not especially...

Ming Lu

Alibaba (BABA US): Record Fine - Grin and Bear It as Better Days Are Ahead

A record-setting fine related to the antitrust violations was imposed on Alibaba on Friday. Find out why we think this is a positive outcome for...

Mitchell Kim

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