by winston » Mon Dec 28, 2020 3:31 pm
vested
The regulator has mentioned 5 rectification measures for Ant, including the need to return to the origin of payments, to improve corporate governance, and to set up a separate financial holding company.
One read of this could be that the regulator was not satisfied with Ant's prior self-rectification measures.
We think more explicit regulations should come out in 2021, as details are lacking for now.
Some scale-back of its non-payments financial services business is largely within the realms of investors' expectations, in our view.
Ant has announced that it will set up a rectification work group to fully implement the requirements as highlighted during its interview with the regulator on 26 Dec.
Again, we should highlight that while this a headwind for Ant, as shared previously, using Q1 FY21 as an example, putting aside the expenses associated with commencement of amortization of intangible assets of Ant upon BABA's receipt of its equity interest in Sep 2019, Ant's proportionate share of profit recognized in BABA's P&L was RMB 3,034m, or -9% of Non-GAAP PATMI.
Separately, the carrying value of Ant as of last FY is RMB 90.7b, so that works out to -12% of Alibaba's NAV.
Separately, Alibaba has announced that the Group has been authorised to upsize its share repurchase programme from US$6b to US$10b. The share repurchase programme will be effective for a 2-year period through the end of 2022, and the programme has commenced this quarter.
We see this as a sign of confidence by the company on its share price coupled with the announcement last week that company will actively cooperate with regulators.
In terms of today's price reaction, on a relative basis, our view is that this is less about Ant and perhaps more about tracking the last BABA US share price reaction on Thursday (-13%), which was down much more than 9988 HK (-8%) on the same day.
Again, we reiterate that the strengthening of antitrust regulatory oversight could weigh on the valuations in the near-term, even as secular drivers remain intact and a break-up or an existential threat of the group is not our base case.
Source: Bank of Singapore
It's all about "how much you made when you were right" & "how little you lost when you were wrong"