Reporter He Yan
Alipay’s parent company ant group has been listed on the hammer, log on to create the board, “lucky” code “688688”. At the same time, it was heard by the Hong Kong stock exchange.
The listing of ant group will probably create the largest IPO in the world in recent years. For investors, what kind of company ant group is and what is the reasonable valuation.
According to the open letter from Jing Xiandong, chairman of ant group to investors, ant is not a financial institution, nor is it a mobile payment company, but a high-quality technology company.
In terms of valuation, ant group’s latest round of financing was in July 2018, with a total financing of 21.8 billion yuan, with a post investment valuation of 960 billion yuan (about US $150 billion). (see Figure 1)
Figure 1: financing process of ant group: company announcement, Tianfeng securities
Can the volume of nearly one trillion yuan rise to a higher level after the baptism of the secondary market? According to the opinions of several representative securities companies, under optimistic circumstances, ant group’s valuation can reach 60 times PE, with a market value of 2.7 trillion yuan; under pessimistic circumstances, it can reach 30 times PE, with a market value of 1.3 trillion yuan.
Founder Securities: under the method of comparable valuation and absolute valuation
The intrinsic value of ants is about 2.7 trillion, which is more than 30% higher than the IPO valuation
From January to June 2020, ant group will achieve a net profit of 21.7 billion. It is conservatively estimated that the annual net profit in 2020 will reach 43.3 billion. Considering that the company’s investment in science and technology and marketing activities will increase in the second half of the year, the IPO value of ant group is 280 billion US dollars, which is 1.9 trillion yuan (assuming 1 US dollar to RMB 6.8 yuan). Based on this estimation, the PE (2020e) of ant group at IPO is about 44 times.
As a reference, the average PE (TTM) of the science and technology innovation board is 79 times (excluding companies with negative net profit and a few samples with PE more than 200 times). As an international peer, PayPal’s current PE (TTM) is 87 times and PE (2020e) is 92 times (based on the closing price on September 30, 2020).
If estimated by 60 times PE, the market value of ants will reach 2.6 trillion, about 382 billion US dollars, which is about 36.4% of the current IPO valuation.
From another dimension, we use EV / EBITDA to estimate: according to the profit forecast, the EBITDA of ant group in 2020 is estimated to be 54.3 billion. At present, the average EV / EBITDA of the science and technology innovation board is 62 times (excluding the top 20 and the lowest 20, taking the remaining 137 as the average). As an international peer, PayPal’s current EV / EBITDA is 58 times. Assuming that the EV / EBITDA of ant group is 50 times, its valuation is about 400 billion US dollars (about 2.72 trillion yuan).
The DCF valuation model is used to predict the free cash flow and sustainable growth rate of ant group in the next five years, and the estimated value of ant group is 404.8 billion US dollars. Among them, the sustainable growth rate is assumed to be 15% and WACC is assumed to be 20% (the return that investors can get from investing in Alibaba is equivalent to the opportunity cost).
Conclusion: the intrinsic value of ant group is about 400 billion US dollars. However, the market value of ant group also depends on the size of market capital, market liquidity and other factors.
China Thailand International: under the three valuation methods of sotp, PE and PS
The market value of ants is 1.7-2.2 trillion yuan
The company’s business is innovative and has formed a unique ecosystem, which makes valuation difficult. We use sotp, PE and PS to evaluate the company, and take the average value. Under the basic situation, the company’s valuation is RMB 1968 billion (equivalent to US $290.7 billion), which is equivalent to 36.5 times the predicted PE in 2020 and 11.6 times the predicted PS in 2020.
Considering that the company’s valuation will also be affected by the market atmosphere at the time of listing and investors’ attention to the company, it is considered that the company’s valuation can reach RMB 2263.2 billion (equivalent to US $334.3 billion) under the optimistic situation, and RMB 167.2 billion (equivalent to US $247.1 billion) under the pessimistic situation, that is, the reasonable valuation range is 1672.8-2263.2 billion (equivalent to 247.1-334.3 billion), It corresponds to 31-42 times forecast PE in 2020 and 9.9-13.4 times forecast PS in 2020.
Figure 2: Valuation of the company under the basic situation (Note: here 1 US dollar = RMB 6.77 yuan) source: company information, forecast by China Thailand International Research Department
Figure 3: reasonable valuation range of the company
Calculate the contribution of important subsidiaries of each business sector to the company’s net profit (innovation business and other small-scale businesses are not included), and allocate the profit / loss generated by the platform function companies responsible for the group’s overall R & D, operation, investment and financing to each business segment according to the proportion of revenue of each business segment, and estimate the expected digital payment and business services, micro loan technology and financial management in 2020 Technology and insurance technology accounted for 10.4%, 71.5%, 8.2% and 9.9% of adjusted net profit respectively. Referring to the same average value of valuation, each business is given 50.4 times forecast PE in 2020 for digital payment and business service business, 45.1 times forecast PE for micro loan technology business, 52.9 times forecast PE for 2020 for financial management technology business, and 3.1 times forecast PS for insurance technology business. After calculating the valuation of each business segment and adding them, the company’s valuation is 2299.2 billion yuan.
Figure 4: corresponding relationship among business sectors and important companies
Figure 5: peer comparison of stop valuation method (valuation updated to the morning of September 23, 2020 after the market closed) source: company information, China Thailand International Research Department
Figure 6: stop valuation (base case) source: company information, Sino Thai International Research Department
PE valuation and PS valuation
As the company’s business is innovative, there is no complete direct comparison with the company. Considering that the company’s business mainly serves Internet users and provides diversified services on the technology driven platform, a large-scale ecosystem has been formed. Therefore, the platform based Internet company providing diversified services is selected as the comparable company for the overall PE valuation and PS valuation.
PE valuation method is used to evaluate the company based on the average value of peer valuation level of 32.7 times in 2020. Under the basic situation, the company’s valuation is 1764.9 billion yuan (equivalent to 260.7 billion US dollars).
Using PS valuation method, based on 10.9 times of the average value of peer valuation level, the company is valued by PS in 2020. Under the basic situation, the company’s valuation is 1840 billion yuan (equivalent to 271.8 billion US dollars).
Figure 7: peer comparison of PE valuation method and PS valuation method (valuation updated to the morning of September 23, 2020 after the market closed) source: company information, Sino Thai International Research Department. Note: meituan’s comments are excluded in PE valuation, mainly because it is still in the early stage of profitability, PE valuation is high and reference is low.
Guoxin Securities: under absolute valuation and relative valuation
The total value of ants is estimated to be 1.7-2.5 trillion yuan
The growth rate of net profit in the dominant period of the company in recent three years is assumed to be nominal GDP growth rate, and the income growth rate in the semi dominant period in the intermediate stage is gradually approaching the sustainable growth rate. From the perspective of the company, as the proportion of payment business income decreases and the proportion of other income increases, its gross profit rate is expected to gradually increase; in the long run, it is expected that with the overall growth rate of the follow-up industry slows down, the sales expense rate will decline, and other key indicators are assumed to remain stable.
8. Forecast data of Cathay Pacific Securities
Using fcee valuation method, in addition to the above main assumptions, the other two main assumptions are WACC and sustainable growth rate. At present, the company does not have long-term transaction data to calculate WACC. Therefore, according to the commonly used discount rate in the past, it is assumed that it is 10% and the sustainable growth rate is 5%. Based on the above assumptions and sensitivity analysis of WACC and sustainable growth rate, the reasonable value range of the company is 56-78 yuan.
Sensitivity analysis of absolute valuation
The absolute valuation is more sensitive to WACC and sustainable growth rate. The following table shows the sensitivity analysis of absolute valuation of the company relative to the changes of these two factors.
Figure 9: sensitivity analysis of absolute valuation relative discount rate and sustainable growth rate (yuan) source: Guoxin Securities
Ant group is engaged in a strong unique business, select the Internet companies which have partial overlap or close contact with its business as the benchmark, and use PE method for valuation. Referring to the valuation of comparable companies and considering the scale factor, the company is given 40-60 times of 2020 PE, and the corresponding reasonable price range is 56-84 yuan.
Figure 10: Valuation comparison of similar companies: wind consensus forecast and Guoxin Securities forecast. Note: the figures in the table are based on the closing price on September 18.
To sum up, the dynamic PE corresponding to the company’s stock in 2020 is 40-60 times, corresponding to the company’s total value of 1.7-2.5 trillion yuan.
China Merchants Securities: benchmarking overseas comparable companies
The market value of ants is estimated to be 1.3-2.2 trillion
Benchmarking with visa, MasterCard, paypal and American Express, the market value of American financial technology bull stocks is between 100 billion and 300 billion US dollars. The PE (TTM) is 41 times, 46 times, 80 times and 21 times respectively, and the center is about 40 times.
Figure 11: US fintech stock market value and profitability source: wind, China Merchants Securities
It is estimated that the total share capital of this issue will be 30.483 billion shares after the over allotment right. The EPS of 2020-2022 is predicted to be 1.43 yuan, 1.88 yuan and 2.44 yuan respectively
If 30 times PE is given, the market value will be 1308.1 billion yuan; if 40 times PE will be given, the market value will be 1744.1 billion yuan; if 50 times PE will be given, the market value will be 218.2 billion yuan.