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Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

Alibaba Group Holding  / Equity Bottom-Up

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: <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>Implications: <ul>
<li>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, <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)
</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.  This was broader than expected.  It is difficult to imagine how to stop consumers from selecting an investment product.  </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