Ant Group

 24 October 2020

Dear Fellow Investor,

Last week, I attended a zoom briefing on the Ant Group Financial IPO to be listed in Hong Kong next month. It is reported to be the Amazon of money.

Ant Group, which is poised to raise more than $30 billion in the biggest IPO in history. The Hangzhou, China-based company has evolved into a financial conglomerate that may be valued at more than $300 billion, roughly double that of Goldman Sachs and US fintech darling Square put together. The West doesn’t have anything quite like Ant, and it doesn’t seem likely to create one anytime soon.

The idea that there could be an Amazon of finance—an internet-native supermarket for money—has been around since at least the late 1990s. Before Elon Musk started making rockets and electric cars, he founded X.com, which merged with PayPal, to do just that. More recently, so-called neobanks in Europe have said they have the same ambition. But Ant, whose valuation is in line to have doubled in around two years, is really the only company that has pulled it off at hyper-scale. The enterprise has brought millions of Chinese people into the financial system, providing a single app, Alipay, for everything from savings accounts to insurance. Bloomberg

Doing a peer comparison here is how Ant Group stacks up with other payment companies. This shows we are not overpaying based of valuations

Payment company financial ratios

Company	Market capitalization	2019 profit/net income	P/E ratio	Valuation to annual payment volume
Visa	$422 billion	$12.1 billion	39	0.04
Ant*	$300 billion	$2.7 billion	32	0.02
PayPal	$250 billion	$2.5 billion	98	0.32
Square	$79 billion	$0.4 billion	297	0.75

Quartz | qz.com  Data: Companies, Bernstein, FactSet  Note: *forward ratio estimate, Bernstein

Our company Phillip Capital Management is accepting applications for the IPO offering but success rate on the take up is estimated at only 2 %. If you deposit RM 250,000 , you may only get RM 5000 worth of shares.

My suggestion if interested is to wait for the listing and buy when the euphoria lessens.  We can buy via our Global Wrap Accounts.  I am always sceptical of IPOs as the buyer has to absorb the underwriting costs. The underwriters (the sellers) have the advantage as they know the company valuations better than the buyers.   They will list when markets are performing well so as to get a higher price. 

EWH, exchange traded ETF traded on the NYSE which is a basket of blue chip Hong Kong shares.

The EWH is a play on China recovery. Valuations are reasonable at a PE of 14.2 and a dividend yield of 2.87 % .

China is showing positive  GDP growth, has opened up their economy and seems to have their Covid problem under control. This will benefit our EWH holdings.

Recent numbers coming out of Bank Negara are showing Malaysian economic resilience: savings rates up, auto sales up, credit card usage at a pre pandemic high and consumer spending rising.  Sentiment remains pessimistic which is holding the KLSE down.

Uncertainty about stimulus and the US election on 3 November is also keeping world markets in a holding pattern. We are defensively positioned no matter the outcome.

Keep safe

Bill

Ali Baba Fin Tech arm, Ant Financial