Is Alibaba’s US$34 billion stock rally justified? Here’s what BofA, Deutsche Bank, Daiwa and Macquarie say about the business makeover
- Business revamp appears to have Beijing’s hidden hand in it, Kaiyuan Capital’s Silvers says, though it should benefit shareholders
- Decision may have more strategic meaning as it can help mitigate the ‘winner’s curse’ given recent crackdown and Beijing’s ‘common prosperity’ agenda: BofA
The move is expected to unlock values from its assets, most analysts said, while allaying Beijing’s concerns over the group’s dominance in the local economy. Is the US$32 billion overnight gain in market value in New York, and HK$21 billion (US$2.7 billion) in Hong Kong, justified?
Here’s what the market is saying about Alibaba’s biggest internal revamp since its inception more than two decades ago. [Alibaba is the owner of the South China Morning Post].
Brock Silvers, Kaiyuan Capital: Beijing’s hidden hand?
“Alibaba’s break-up appears to have been orchestrated by Beijing, along with Jack Ma’s sudden reappearance,” managing director Silvers said. “The business unit separation does not seem to result from a strategic impetus, but looks to have deep potential upside for shareholders.”
Alibaba revamp plan lifts tech stocks in Hong Kong, pushes index past 20,000
In the longer-term, this may be a concern if it reflects Beijing’s ongoing discomfort with private sector success, Silvers added. But for now markets should be pleased, with a bump for the tech sector as a whole, he added.
“If Beijing’s goal is to limit the influence of tech titans, Pony Ma [Tencent’s founder and CEO] would be an obvious target,” he said. “For any tech giant, any noncore activity has to now be seen in light of Alibaba’s break-up.”
BofA Securities: mitigating the ‘winner’s curse’
Alibaba’s reorganisation may have more strategic meaning as it can help mitigate the “winner’s curse”, analysts including Winnie Wu said in a note on Wednesday. It will be an important experiment to see if the business split-up is the solution to reduce its size, impact, antitrust concerns, and thus the policy risk, they added.
Big internet platform operators are also facing rising overseas policy risks amid heightened US-China tensions. The business break-ups may help insulate the group from the impact of these risks, the analysts said.
Daiwa Capital Markets: higher agility to unlock values
Setting up individual business groups will enable quicker market response amid intensifying competition, analyst John Choi said. The reorganisation is unlikely to disrupt operations, as management changes have been in place for some time, he added.
The possibility of public listings for individual business units, such as Cainiao and Local Services, has increased, which could attract more external funding and unlock values for the group, Hong Kong-based Choi said.
Deutsche Bank: feeding the IPO pipeline
“This is positive news in the sense that it helps unlock the value of individual businesses,” said Scott Prebola, Head of Asian Equity Sales and APAC Relationship Management. This is also probably “a decent indicator for new IPOs in the pipeline, indicating a relaxation of the regulatory environment”, he said.
Macquarie Capital: completion of a series of Alibaba’s internal adjustments
“We expect to see more proactive decision-making amid a changing market, potentially lifting overall operational efficiency for all of Alibaba’s business segments,” according to a report published by analysts Ellie Jiang, Jason Zhang and Esme Pau.
“Many of Alibaba’s core units still incur losses at this stage. We believe having a clearer business unit organisation drives higher operational granularity and transparency, while each unit will be better accountable for its financial performance and stability.
“With each unit now running more independently, employees and management team are encouraged to return to the entrepreneurial mode, which is an important mindset to support the platform’s long-term competitiveness,” they added.
