Company overview
Ant Group, the parent company of Alipay, China's largest mobile payment platform, and the world's leading financial technology development platform, is committed to promoting the digital upgrading of the global modern service industry, including financial services, through technology and innovation. In terms of total payment transaction size and digital financial transaction size, the company is China's leading digital payment provider and leading digital financial platform. The company's Alipay App service exceeds 1 billion users and more than 80 million merchants. Based on extensive user coverage, the company provides financial institution partners with digital financial technical support, customer access and risk management solutions to help them provide consumer credit, micro-operator loans, financial management and insurance services.
Ant Group's business mainly includes digital payment and living services and digital financial technology platform. Digital payment and living services mainly focus on Alipay platform. According to the total payment transaction size, the company is the largest digital payment service provider in China. During the 12-month period ending June 30, 2020, the total payment transactions handled by the company's platform in mainland China were as high as 118 trillion yuan, while the total international payment transactions were 622 billion yuan. Digital financial technology platform includes micro-loan technology platform, financial management technology platform and insurance technology platform. At present, it has cooperated with about 100 banks, about 170 asset management companies and about 90 insurance institutions. As of June 2020, the scale of consumer credit transactions on the company's platform has reached 1.732 trillion yuan, the scale of small and micro business loans has reached 422 billion yuan, the scale of asset management has reached 4.099 trillion yuan, and the scale of insurance premiums and apportioned amounts has reached 52 billion yuan.
From 2017 to 2019 and 2020H1, the company achieved operating income of 65.4 billion yuan, 85.72 billion yuan, 120.62 billion yuan and 72.53 billion yuan respectively, with an average annual compound growth rate of 35.8% from 2017 to 2019. From 2017 to 2019, and 2020H1 Company realized Non-GAAP net profit of 14.12 billion yuan,-18.33 billion yuan, 24.16 billion yuan and 23.91 billion yuan respectively.
Industry status and prospects
According to iResearch, digital payment transactions in China reached 201 trillion yuan in 2019 (including consumer payments, financial payments, personal payments and other payment transactions through e-wallets).
The size of digital payment transactions in China is expected to reach 412 trillion yuan by 2025.
The size of China's consumer credit market is expected to grow from 13 trillion yuan in 2019 to 24 trillion yuan in 2025, with an average annual compound growth rate of 11.4 percent. In 2019, the balance of consumer credit accounted for 14 per cent of cash and deposits, compared with 33 per cent in the US.
The credit balance of China's small and micro operators with a single amount of less than 500000 yuan is expected to grow from 6 trillion yuan in 2019 to 26 trillion yuan in 2025, with an average annual compound growth rate of 27.2 percent.
China's individual investable assets are expected to grow from 160 trillion yuan in 2019 to 287 trillion yuan in 2025, with an average annual compound growth rate of 10.3 percent. China's individual investable assets sold through online channels reached 21 trillion yuan in 2019 and is expected to reach 69 trillion yuan in 2025, with an average annual compound growth rate of 21.6 percent from 2019 to 2025.
The scale of insurance premiums in China is expected to increase from 4.3 trillion yuan in 2019 to 8.6 trillion yuan in 2025, with an average annual compound growth rate of 12.4 percent. In 2019, the scale of online premiums in China reached 300 billion yuan. Driven by digital technology, it is expected to reach 1.9 trillion yuan in 2025, with an average annual compound growth rate of 38.1 percent from 2019 to 2025.
Advantages and opportunities
The company has a booming Alipay platform and ant ecosystem.
The company has profound industry accumulation, excellent customer insight and leading technology.
The company has synergy with BABA Group.
Weakness and risk
Tighter financial supervision may change the company's business model.
The issuance of the central bank's digital currency DCEP may change the competitive pattern of the payment industry.
The prospect of science and technology war between China and the United States is uncertain.
Investment valuation
As to whether Ant Group should adopt the valuation method of financial stocks or technology stocks, we think: 1) from the point of view of business characteristics, the company conducts credit analysis of users through data and algorithms to help traditional financial companies obtain users who are traditionally difficult to obtain or underqualified, and at the same time obtain better risk control (D90 + overdue rate and historical batch M1 + overdue rate are the best in the industry). It is a typical business model with technology and data as the core. 2) in terms of growth drivers, the company mainly obtains more data and iterates the algorithm by obtaining more users and the number of transactions, so the number of users, the number of payment calls, GPV and other data are the core drivers of the company's growth. From 2017 to 2019, the compound growth rate of corporate income is 36%, and the compound growth rate of Non-GAAP net profit is 31%, which is much higher than that of ordinary financial companies. 3) from the perspective of risk exposure, as of June, the size of the company's consumer credit and micro-business loans exceeded 2 trillion yuan, but most of them belonged to cooperative banks. The company's proprietary part stripped the risk by issuing ABS (the company issued more than 700 billion yuan of ABS in the past 5 years), and the company's balance sheet was only about 310 billion (of which only about 120 billion of financial assets). Therefore, the company does not have the typical risk characteristics of financial stocks. To sum up, we think that Ant Group should be regarded as an Internet technology company and be valued according to the Internet technology company.
According to the IPO price (HK $80.00), the company's IPO market capitalization is HK $2.43 trillion, which is a large market value of shares. The total financing size of this IPO is about 230 billion yuan, of which A shares and H shares each account for 50%. The A share issue has introduced 10 enterprises and other investors, including BABA (Zhejiang Tmall subscribed for 730 million shares), social security fund (total subscription RMB 7 billion), 10 enterprises and other investors including Temasek (total subscription RMB 9.2 billion) and 8 public offering funds (total subscription of about RMB 12 billion). It is estimated that the tradable market value of the company's H-shares after listing is HK $135 billion.
Based on the IPO pricing, we estimate that the post-IPO market capitalization of the company will correspond to 2020E and 2021E Pmax E will be about 42x and 32x respectively, slightly higher than Hong Kong Internet leader Tencent and BABA (2020E/2021E Pmax E 38x and 30x), lower than US stock financial technology leader PayPal Holdings Inc with similar market capitalization (2020E/2021E Pamp E 55x and 45x), and the overall IPO valuation is more reasonable. Taking into account the larger market capitalization of the company, and this IPO is more hot, and the first-hand amount is lower, group An is expected to apply for more hot. If you apply for purchase through financing, it is recommended to join Group B (70,000 shares or more). In the long run, Ant Group has a solid leading position as the world's largest financial technology company, and has huge room for growth in the future, which can be held for a long time. Give IPO a dedicated rating of "7".