By Danish Lim, Investment Analyst, Phillip Nova
E-commerce giant Alibaba is up by 15% since March 29 where it announced plans to split into 6 autonomous business units, each able to raise capital via its own IPO.
The 6 units will include China commerce (Taobao), International commerce (Lazada), Cloud, Cainiao logistics, Local Services, and Digital Media & Entertainment.
Alibaba’s logistics arm Cainiao, currently valued over $20B, is reportedly preparing for its Hong Kong IPO. Meanwhile, Rival firm JD.com also had 2 of its subsidiaries, Jingdong Property and Jingdong Industrials, file for IPOs in Hong Kong.
We believe this move will help to decentralize the company’s business lines and mitigate regulatory risks. It should receive support from government regulators who have been cracking down on the monopolistic influence of tech giants. This comes as Jack Ma returns to China on Monday after more than a year abroad. We think this could serve as indication of a potentially softer regulatory environment in China as the government attempts to revive a sluggish economy.
Q3 EPS and revenue grew by 14.17% YoY and 2.13% respectively. Consumption recovery and a leaner cost structure fueled by aggressive cost cuts should help boost the group’s bottom line.
The stock looks highly attractive at a Blended Forward P/E ratio of 11.2x, a -46% discount to its 5Y average P/E.
We believe stock valuations are likely to go up as markets adopt a “Sum of the Parts” (SOTP) valuation approach to Alibaba – where each individual business segment will be valued separately and then added together to derive a the Total Enterprise Value.
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