Alibaba Moves To ‘Unlock Shareholder Value’
Alibaba (9988 HK, BABA US) announced after the Hong Kong close that it will become a holding company comprised of the below six business groups in order to “unlock shareholder value and foster market competitiveness” to “capture market opportunities and stimulate growth”. The business group will be able to raise funds and go public as it sees fit.
Alibaba relisted in Hong Kong in November of 2019 after the trade war weighed on the stock despite revenue increasing to $56 billion (RMB 376 billion) for the fiscal ended March 31st, 2019 from $37 billion (RMB 250 billion) for the fiscal year ended March 31st, 2018 and $23 billion (RMB 158 billion) for the fiscal year ended March 31st, 2017. After announcing its Hong Kong listing, Alibaba rallied 68%. The recent geopolitical environment has weighed on the stock yet again and despite revenue increasing from $73 billion in 2020 to $105 billion in 2021 and $132billion in 2022.
Management is providing a key catalyst for investors to own shares. Analyst price targets are based on a sum of the parts analysis with the twelve month price target $142 versus yesterday’s close of $86 (65% upside). Ultimately, Alibaba is telling investors that they haven’t properly valued the company, which is driven by the geopolitical overhang, rather than the fundaments. The shareholder-friendly move can be contrasted with competitors, who appear to be focused on cutting prices. Hat tip to Alibaba management for thinking outside of the box, though, to their credit, this is not the first time.
Alibaba’s New Business Groups:
- Cloud Intelligence Group – Chairman and CEO Daniel Zhang will lead, highlighting the importance of cloud and AI.
- Taobao/Tmall Commerce Group – Taobao (Consumer to Consumer) and Tmall (Business to Consumer) are Alibaba’s two domestic China e-commerce platforms serving retail and business clients.
- Local Services Group – Ele.me is Alibaba’s restaurant/food delivery service.
- Cainiao Smart Logistics – Cainiao is Alibaba’s delivery unit, which had been kept separate due to the low margin nature of the business, but was ultimately brought into the company.
- Global Digital Commerce Group – E-commerce units outside of China including Southeast Asia focused Lazada, Turkey based Trendyol, and international-focused B2B Alibaba.com and international consumer focused AliExpress.
- Digital Media and Entertainment Group – Alibaba’s efforts to garner more eyeballs to its platform led to efforts such as online video company Youku, which they bought back in 2016, and movie studio Alibaba Pictures, which produced one of the Mission Impossible films. The unit has struggled to become profitable over the years.
Asian equities were largely higher on light volumes, indicating a lack of conviction and nervousness among investors.
Alibaba’s announcement came after the local close as Hong Kong’s most heavily traded stocks were Tencent, which gained +4.24%, Meituan, which gained +2.44%, Alibaba, which fell -1.17%, AIA, which gained +1.61%, and Baidu, which gained +1.81%. It was a light night for Hong Kong news as Baidu provided access to its ERNIE chat bot, garnering positive feedback. Meanwhile, it was another strong day of Mainland investors buying Hong Kong stocks via Southbound Stock Connect as Tencent and Meituan saw outsized buying.
Mainland China financial news included several positive headlines, though Shanghai and Shenzhen posted small losses. The China Development Forum garnered further attention due to the senior government officials participating, which is being read as a commitment from the government to foreign companies. As we mentioned yesterday, Tim Cook was far from the only US executive attending, though he seemed to garner all the media attention. The lack of US government officials was also noted as Prime Ministers from Singapore, Spain, and Malaysia attended, while a Chinese economic delegation visited Israel. Businesspeople are willing to get on planes, meet, and talk.
Energy was front and center as Saudi Arabia announced an investment in two Chinese refineries as the two heads of state spoke overnight, CNOOC announced deals with both Shell on an ethylene project, and Total Energies on an LNG project, according to Yicai Global. Chinese energy companies will also benefit from SOE reforms coming out of the Dual Session as ex SOE strategies are going to face a real headwind! Official government media spoke to the large uptick in domestic Chinese flights as Air China is flying 1,547 flights each day, which is 51% more than 2019.
Trip.com (TCOM US, 9961 HK) filed with the SEC that, in accordance with the HFCAA, it “is not aware that any governmental entity in China controls the Company.”
The Hang Seng and Hang Seng Tech gained +1.11% and +0.94%, respectively, on volume that decreased -16.56% from yesterday, which is 88% of the 1-year average. 274 stocks advanced while 219 declined. Main Board short turnover declined -15.6% from yesterday, which is 82% of the 1-year average as 16% of turnover was short turnover. Value factors outperformed growth factors as large caps outpaced small caps. The top-performing sectors were communication, which gained +3.48%, utilities, which gained +1.8%, and real estate, which closed higher by +1.67%. Meanwhile, healthcare fell -0.89%, consumer staples finished lower by -0.75%, and technology closed lower by -0.46%. The top-performing subsectors were software, autos, and insurance, while household products, semiconductors, and healthcare equipment lagged. Southbound Stock Connect volumes were light as Mainland investors bought $368 million worth of Hong Kong stocks as Kuiashou was a small net buy, Tencent and Meituan were both large/moderate net buys.
Shanghai, Shenzhen, and the STAR Board were off -0.19%, -0.7%, and -1.78%, respectively, on volume that decreased -11.87% from yesterday, which is 112% of the 1-year average. 1,485 stocks advanced, while 3,175 stocks declined. Value factors and growth factors were mixed as large caps outpaced small caps. The top-performing sectors were consumer staples, which was up +1.39%, healthcare, which gained +0.63%, and energy, which closed higher by +0.29%, while technology fell -2.04%, real estate closed down by -0.67%, and industrials finished lower by -0.51%. The top-performing subsectors were petrochemical, chemical fiber, and energy, while computer hardware, internet, and electronic components lagged. Northbound Stock Connect volumes were moderate/high as foreign investors bought a net $51 million worth of Mainland stocks. CNY and the Asia Dollar Index managed small gains versus the US dollar. Treasury bonds sold off small, while Shanghai copper and steel both gained.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 6.87 versus 6.89 yesterday
- CNY per EUR 7.45 versus 7.43 yesterday
- Yield on 10-Year Government Bond 2.85% versus 2.86% yesterday
- Yield on 10-Year China Development Bank Bond 3.02% versus 3.02% yesterday
- Copper Price +0.38% overnight
- Steel Price +0.39% overnight
Brendan Ahern, Senior Contributor