Positive frequent spread, BABA's future is interesting?

BABA, China's leading science and technology company, has announced that its board of directors has authorized management to apply for a major listing on the main board of the Hong Kong Stock Exchange (00388.HK). The major listing process is expected to be completed by the end of 2022, when BABA will become a dual major listed company on the NYSE and HKEx.

BABA is currently listed on the main board of the Hong Kong Stock Exchange and will apply for the addition of Hong Kong as a major listing place in accordance with the rules of the Hong Kong Stock Exchange. BABA's depositary shares listed in the United States and common shares listed in Hong Kong can be converted into each other, and investors can continue to choose to hold group shares in one of these forms.

BABA's Hong Kong shares rose more than 6.5 per cent in a single day on the news.

What is the significance of dual major listings, and why are overseas investors so optimistic?

Dual major listings will reach more investors

At present, BABA is the second listed on the main board of the Hong Kong Stock Exchange. According to the current mechanism, he is unable to enter the "Hong Kong Stock Connect" channel.

The Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect are market connectivity schemes under which Hong Kong and mainland investors can buy, sell and settle shares listed on each other's markets through exchanges and clearing houses in the local market.

For example, eligible mainland investors can use the Shanghai-Hong Kong Stock Connect / Shenzhen-Hong Kong Stock Connect to buy HKEx-listed stocks and stocks ETF; on the Shanghai-Hong Kong Stock Connect / Shenzhen Stock Connect list. Similarly, Hong Kong stock investors can also use the Shanghai-Hong Kong Stock Connect / Shenzhen Stock Connect to buy stocks and stock ETF listed on the Shanghai and Shenzhen stock exchanges.

According to the current trading regulations, as BABA is the second listed company on the Hong Kong Stock Exchange and is not on the Hong Kong Stock Connect list, and once it is newly listed in Hong Kong, BABA is expected to be allowed to enter the Hong Kong Stock Connect list, reaching mainland investors and broadening the base of investors in Greater China and even around the world.

Since the launch of the Shanghai-Hong Kong Stock Connect in 2014 and the Shenzhen-Hong Kong Stock Connect in 2016, the share of trading volume through Hong Kong Stock Connect in the main board of the HKEx has increased year by year, as shown in the chart below.

According to Wind, the total turnover of Hong Kong shares reached HK $405.7 billion in the month to July 25, 2022, equivalent to 30.73% of the total turnover of HK $1.3199 trillion on the main board of the HKEx in the same period, which means that BABA is expected to be favored by more investors and capital after the major listing on the HKEx.

It is conceivable that BABA, as a leading platform enterprise in the mainland, accounts for a relatively high proportion of its business in Greater China. Once it is included in the scope of the Hong Kong Stock Connect, it will receive more attention from mainland investors.

Apart from being expected to be supported by southbound funds, BABA is mainly listed in the Hong Kong stock market, which may attract funds from the surrounding markets, and also allay the market's worries about the potential risks arising from changes in the macro environment, thus allowing investors to focus more on its long-term fundamentals.

The fundamentals are solid and the three strategies face the future.

Mainland new economy enterprises provide different services and facilities for residents to live and work every day, and mainland investors know their business situation, product and service advantages and intrinsic value relatively better than foreign investors. BABA's solid fundamentals are expected to be recognized by investors.

In a letter to shareholders, BABA Chairman and CEO Zhang Yong reiterated the three strategies identified in early 2022: consumption, cloud computing and globalization, as the group's unswerving direction and guidance for the future.

Consumption: BABA achieves the set goal of more than 1 billion domestic annual buyers in the field of consumer business, which is a milestone in the development of the group. This platform not only has the most extensive and valuable consumer groups in China, but also gradually establishes a rich consumption matrix with other value positioning.

In the past fiscal year, more than 124 million consumers spent more than 10000 yuan on Taobao Tmall, with an activity rate of 98 per cent. Of the more than 300m annual active consumers on Taobao this fiscal year, 20 per cent have never shopped on Taobao Tmall, while more than 50 per cent of annual active consumers on Taobao bought fresh food on its platform for the first time.

More importantly, the Group focuses on customer experience, uses matrix diversified growth to serve the diverse consumer needs of different groups in differentiated scenarios, and continues to increase the total wallet share of 1 billion consumers.

In addition, BABA has also gradually established a set of distributed logistics network, forming a complete layout of large-scale far, middle and near field, and has gradually realized a variety of models from the whole country to the local area, from the far field to the near field, the same day, the next day, and so on, including the city logistics and real-time logistics distribution network that has been vigorously built in recent years.

Cloud computing: in fiscal year 2022, BABA's cloud computing business continued to maintain its leading position in the Chinese market and made the first full-year profit in Aliyun's 13-year history.

According to Gartner's IaaS and PaaS score evaluation in 2021, Aliyun's IaaS and PaaS products scored 81 points (out of a total of 100 points) in the market.

China's cloud computing market is expected to reach trillions of yuan in 2025, three times the current size, and the prospect of the cloud computing market is very broad. Through the implementation of the cloud nail integration strategy, BABA has helped more enterprises move from organizational digitization and office digitization to broader business digitization. At present, the number of paying customers has exceeded 4 million, including more than 60 per cent of A-share listed companies. As a leading operator in the cloud computing industry, BABA should be able to take advantage of its leading advantages and accumulated technological advantages to seize the opportunities for the development of the industry and promote the high-quality and sustainable development of cloud computing.

Globalization: BABA is also committed to exploring the globalization of consumption and cloud computing. Brands with multiple consumer businesses in some regions and countries around the world, including AliExpress, Lazada, Trendyol and Daraz, have more than 300 million annual buyers in overseas markets. In terms of cloud computing, BABA currently provides cloud computing services in 27 regions of the world. According to a report released by Gartner in April this year, BABA is the third largest IaaS provider in the world and the largest in the Asia-Pacific region.

These three strategies, or the direction of BABA's key development in the future, will become an important driving force for its growth. Therefore, with the support of strong domestic growth, continued expansion of the international market, continued advantages of cloud computing and optimization of the ecosystem, BABA is expected to create higher value.

It is worth noting that BABA has achieved the milestone of serving more than 1 billion Chinese consumers, accomplishing one of the goals for fiscal year 2024 ahead of schedule. At the same time, the group has also set a vision for fiscal year 2036-serving 2 billion consumers around the world and helping 10 million small and medium-sized enterprises to make a profit. These development goals also mean that BABA has huge growth prospects and space in the future, and his valuation does not seem to reflect these positive factors.

Despite BABA's announcement of a dual major listing, Hong Kong stock prices rose 4.82% in a single day and were praised by a number of investment banks, reflecting the positive interpretation of the news by the market and investors. In addition, BABA's board of directors approved the expansion of its share buyback plan to $25 billion in March 2022, indicating that management is quite confident about BABA's future.

Summary

Increasing the major listing status of the Hong Kong stock market will help BABA reach investors who have a deep understanding of it-mainland investors will be able to invest in BABA through the Shanghai-Shenzhen-Hong Kong Stock Connect, expanding the investor base and bringing new liquidity. and get a fairer and more reasonable valuation.

The reaction of the capital markets is showing optimism about BABA's dual major listing, with BABA's Hong Kong shares rising 4.82 per cent in a single day and US stocks up 4.69 per cent in pre-market trading after the announcement.