Alibaba Group

Equity Research | Tech, Media & Telecom
12 May 2014
Alibaba Group
Before IPO - extracts from F-1
Alibaba Group recently filed Form F-1 in US, and here is the extract.
Comprehensive ecosystem with strong growth rate in China:
Alibaba Group plans to list its ecommerce kingdom in US. The Group
operates 3rd party platform in B2B, B2C and C2C universe and
accumulates solid seller/enterprise resources. While Alipay is excluded
as communicated, its logistic network company is included as a 48%
affiliate. In China with 231m annual active buyers and 8m active sellers
in 2013, the Group offers user traffic to seller at a fee and receives
commission based on transaction through Alipay typically 0.5%-5.0%
depending on product category. GMV transacted on Alibaba retail
marketplaces in China in 2013 calendar year was RMB1,542b; total
revenue and net profit grew quickly to RMB49.1b and RMB21.7b.
Extracts from F-1
Share price: TBC
Bloomberg Ticker: TBC
Reuters: TBC
Maintains “Alibaba Partnership” for board control by simple majority:
Alibaba formalized “Lakeside Partners” in 2010, which is known as
“Alibaba Partnership” in the offering. Unlike dual-class ownership
structure, Alibaba Partnership has the exclusive right to nominate a
simple majority of board of directors to stick to its vision. Alibaba
Partnership currently has 28 members of 22 listco mgmt and 6 mgmt of
related companies and affiliates. Latest move of Alibaba Group is to
make presences in online sectors such as portal, media, location-based
service and social media through frequent acquisition and investments.
Founder personal charisma and relationship with major shareholders:
Lead founder Jack Ma is the key to the Group success. The 18 founders
were bounded since Alibaba.com was launched in 1999 that focused
on global trade to assist small exporters in China. Since 2000, Softbank
(9984 JP) and Yahoo (YHOO US) separately invested in, formed JV with,
subscribed CB of, and contributed business entity to Alibaba Group
under Jack Ma’s leadership. While conflicts among Jack Ma, Yahoo and
Softbank in relation to Alipay in 2011 did have impact on corporate
governance and hinted economic interest struggle, Mr Ma vision and
charisma are still key to lead Alibaba Group development.
Tencent valuation recently down to US$110b at 12x P/S at 2013A:
In recent trading, Alibaba largest competitor Tencent (0700 HK) is
valued at US$110b at 12x P/S and 46x P/E on 2013A figures. While
some could rely on experts estimate on future internet market size and
assign a market share, we incline to check on relative valuation at this
stage. Applying the same ratio to Alibaba Group as of 2013 calendar
year, expected valuation could be between US$90b and US$155b due
to lower sales yet higher profit margin. Alibaba is of VIE structure.
Kevin Mak, CFA
Analyst
+852 3519 1299
[email protected]
Illustration 1. Alibaba Group key entites and related companies / affiliates:
Source: Alibaba Group (slightly modified)
Table 1. Quarterly income and profit breakdown
Yr-end Mar (RMBm)
China commerce
International commerce
Cloud computing and internet infrastructure
Others (including SME loan business)
Total revenue
Q1 13A
Q2 13A
Q3 13A
Q4 13A
Q1 14A
Q2 14A
Q3 14A
5,601
974
155
63
6,793
6,152
1,049
164
92
7,457
10,172
1,094
165
162
11,593
7,242
1,043
166
223
8,674
9,193
1,117
174
294
10,778
9,213
1,176
190
371
10,950
16,761
1,264
196
524
18,745
Operating costs
Yahoo TIPLA amendment payment (one-off)
Income from operation
(4,448)
2,345
(5,076)
(3,487)
(1,106)
(6,533)
5,060
(4,222)
4,452
(5,358)
5,420
(5,702)
5,248
(9,944)
8,801
1,722
(1,560)
4,045
4,197
4,384
4,883
8,266
Table 2. Gross transaction values on in retail markets in China
Q1 13A Q2 13A
Yr-end Mar (RMBm)
Q3 13A
Q4 13A
Q1 14A
Q2 14A
Q3 14A
Net profit
GMV on Alibaba China retail marketplaces
209.0
228.0
346.0
294.0
345.0
374.0
529.0
Mobile GMV on Alibaba China retail
Mobile GMV / overall GMV in China retail
9.6
4.6%
12.8
5.6%
25.6
7.4%
31.5
10.7%
41.4
12.0%
55.0
14.7%
104.2
19.7%
133
145
160
172
185
202
231
Active buyers on Alibaba China retail
Source: Orient Securities
2/7
Table 3. Profit and loss summary
Year-end Mar (RMBm)
Total revenue
2012A
2013A
9M 13A
9M 14A
YoY
20,025
34,517
25,843
40,473
56.6%
Cost of revenue
Product development expenses
Sales and marketing expenses
General and administrative expenses
Amortization of intangible assets
Impairment of goodwill and intangible assets
Yahoo TIPLA amendment payment
EBIT
(6,554)
(2,897)
(3,058)
(2,211)
(155)
(135)
5,015
(9,719)
(3,753)
(3,613)
(2,889)
(130)
(175)
(3,487)
10,751
(7,442)
(2,899)
(3,092)
(2,344)
(105)
(175)
(3,487)
6,299
(9,899)
(3,893)
(3,267)
(3,704)
(197)
(44)
19,469
209.1%
Interest and investment income, net
Interest expense
Other income, net
Share of results of equity investees
EBT
258
(68)
327
(25)
5,507
39
(1,572)
894
(6)
10,106
(25)
(1,113)
593
(9)
5,745
1,080
(1,842)
1,178
(174)
19,711
243.1%
Income tax
Total profit
Net profit
Minority interest
Accretion of convertible preference shares
Dividends accrued on convertible preference shares
(842)
4,665
4,228
437
-
(1,457)
8,649
8,404
117
17
111
(1,362)
4,383
4,207
108
9
59
(1,969)
17,742
17,533
29
24
156
304.8%
316.8%
-
Impairment of goodwill and intangible assets
Yahoo TIPLA amendment payment
Adjusted net profit
(135)
4,363
(175)
(3,487)
12,066
(175)
(3,487)
7,869
(44)
17,577
123.4%
1.67
-
3.57
-
1.76
-
7.63
-
-
Reported EPS (RMB) pre-money
DPS (RMB)
Table 4. Revenue breakdown
Year-end Mar (RMBm)
China commerce
- Retail
- Wholesale
International commerce
- Retail
- Wholesale
Cloud computing and internet infrastructure
Others ( including micro-finance SME loan business)
Total revenue
Source: Orient Securities
2012A
2013A
9M 13A
9M 14A
15,637
13,422
2,215
29,167
26,970
2,197
21,925
20,216
1,709
35,167
33,461
1,706
3,765
223
3,542
4,160
392
3,768
3,117
264
2,853
3,557
653
2,904
515
108
20,025
650
540
34,517
484
317
25,843
560
1,189
40,473
3/7
Table 5. Balance sheet summary
Yr-end Mar (RMBm)
Non-current assets
Investment in equity investees
Investment securities
Prepayments, receivables and other assets
Property and equipment, net
Land use rights
Intangible assets
Goodwill
2012A
2013A
9M 2014A
19,311
1,642
248
1,466
2,463
1,701
355
11,436
20,624
1,555
242
1,496
3,808
1,895
334
11,294
37,231
13,009
1,095
2,041
5,973
1,863
1,610
11,640
Current assets
Cash and cash equivalents
Short-term investments
Restricted cash and escrow receivables
Loan receivables, net
Investment securities
Prepayments, receivables and other assets
27,899
16,857
4,887
3,312
581
593
1,669
43,162
30,396
2,290
3,687
4,426
629
1,734
69,827
41,714
7,248
4,244
12,434
1,207
2,980
1,046
529
413
28,745
389
643
5,191
22,462
60
32,468
396
1,774
40,337
1,200
8,884
451
2,073
13,544
7,879
6,306
34,253
126
33,114
1,013
Non-current liabilities
Deferred revenue
Deferred tax liabilities
Redeemable Preference Shares
Non-current bank borrowings
Other liabilities
104
Current liabilities
Current bank borrowings
Secured borrowings
Income tax payable
Escrow money payable
Accrued expenses, accounts payable and other liabilities
Merchant deposits
Deferred revenue and customer advances
11,751
1,283
375
339
4,659
745
4,350
23,995
3,350
2,098
259
1,315
8,961
3,083
4,929
Total equity
Total mezzanine equity
Shareholders' equity
Non-controlling interests
Source: Orient Securities
34,413
30
31,488
2,895
11,046
10,533
(24)
537
30,226
72
4/7
Illustration 2. Alibaba Group ecosystem
Source: Alibaba Group
Table 6. Shareholders overview (pre-money and before sales of shares)
% holding
Executive Chairman Jack Yun Ma
Executive Vice-chairman Joseph C. TSAI
8.9%
3.6%
Softbank
Yahoo
34.4%
22.6%
Others
30.5%
Total
Source: Orient Securities
100.0%
5/7
Analyst Certification
I, Kevin Mak (Mak Tsz Hang), being the person primarily responsible for the content of this research report, in
whole or in part, hereby certify that:
(1) all of the views expressed in this report accurately reflect my personal view about the subject company(ies)
and its (or their) securities;
(2) no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations
or views expressed in this report, or our Investment Banking Department;
(3) I am not, directly or indirectly, supervised by or reporting to our Investment Banking Department;
(4) the subject company(ies) do(es) not fall into the restriction of the quiet period as defined in paragraph
16.5(g) of SFC Code of Conduct;
(5) I and my associates do not deal in or trade in the stock(s) covered in this report within 30 calendar days prior
to the date of issue of the report;
(6) I and my associates do not serve as an officer(s) of the listed company(ies) covered in this report; and
(7) I and my associates have no financial interests in relation to the listed company (ies) covered in this report.
Meanings of Orient Securities Ratings
Buy – Describes stocks that we expect to provide a total return of >10% within a 12-month period.
Accumulate – Describes stocks that we expect to provide a total return of >0% within a 12-month period.
Hold – Describes stocks that we expect to provide a total return of between -20% and +20% within a 12-month
period.
Sell – Describes stocks that we expect to provide a total return of <0% within a 12-month period.
Disclosure & Disclaimer
Orient Securities (Hong Kong) Limited does and seeks to do business with the company or companies covered in
this report. As a result, investors should be aware that the firm may have a conflict of interest that could affect
the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
Orient Securities (Hong Kong) Limited and its affiliates, officers, directors, and employees may from time to time
have long or short positions in securities, warrants, futures, options, derivatives or other financial instruments
referred to in this report.
In no event will Orient Securities (Hong Kong) Limited or any other member of Orient Securities (Hong Kong)
Limited be liable or responsible for loss of any kind, whether direct, indirect, consequential or incidental,
resulting from the act or omission of any third party occurring in reliance upon the contents of this report.
Any information provided in this research report is for information purpose only and have no regards to the
investment objectives, financial situation or risk tolerance level of any specific recipient and does not constitute
any solicitation or any offer to buy or sell any securities or any other financial instruments. Before entering into
any investment contract, individual should exercise judgment or seek for professional advice when necessary.
Orient Securities (Hong Kong) Limited may not execute transactions for individual(s) in the
securities/instruments mentioned.
6/7
Although the information in this report is obtained or complied from sources that Orient Securities (Hong Kong)
Limited believes to be reliable, no representation or warranty, either expressed or implied, is provided in relation
to the accuracy, completeness or reliability of the materials contained in this report. All price-related information
is indicative only, and value of the investment(s) referred to in this report and the income from them may
fluctuate because of changes in foreign exchange rates, market indexes, relevant operational / financial
conditions of the company and other factors. Information contained in this report may change at any time and
Orient Securities (Hong Kong) Limited gives no undertaking to provide notice of any such change. Past
performance is not a guide to future performance, future returns are not guaranteed, and a loss of original
capital may occur.
This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or
resident of or located in any locality, state, country or other jurisdiction where such distribution, publication,
availability or use would be contrary to any law, regulation, rule or other registration or licensing requirement.
Investment(s) in securities / financial instructions put through/execute outside Hong Kong are subject to the
applicable laws and regulations of the relevant overseas jurisdiction, the entity issuing this research report and
the analyst(s) authoring this research report are not subject to all the disclosures and other regulatory
requirements in other countries.
This report may not be copied, reproduced, distributed, redistribute or published by any person for any purpose
without the prior written consent of Orient Securities (Hong Kong) Limited. All rights are reserved.
7/7

Download Report