The love story between BABA and the HKEx will come to a perfect end tomorrow. They once loved vigorously and painstakingly, and finally got back together, just like a fairy tale.

China's largest technology company will be officially listed tomorrow, priced at HK $176a share (a 3 per cent discount to US stocks), with the stock symbol 9988. This is the second time that BABA has listed in Hong Kong and will become the largest IPO in Hong Kong's history.

For investors in Greater China, BABA is both familiar and unfamiliar. Familiar because our daily life is inseparable from the services provided by BABA, unfamiliar because after BABA's B2B business was delisted from the HKEx in 2012, we have been unable to invest in China's best Internet companies.

Tomorrow, BABA will once again return to the arms of the HKEx. Is he still worth our bet?

1，Continue the leading edge

BABA has been listed twice in history. Different environments and different company fundamentals have led to great changes in BABA's valuation.

The first listing was in November 2007, when the bull market was at its hottest in 2007, when the Hang Seng index was about 30000, higher than the current 26000. That month, BABA spun off his B2B business and landed on the Hong Kong Stock Exchange at an offering price of HK $13.50 under the symbol 1688.HK.

The share price soared 193% on the day of the listing, and reached an all-time high of HK $40.4 the next day, up nearly 300% from the offering price. The market capitalization exceeded 20 billion US dollars, surpassing the market capitalization of Tencent and Baidu, Inc., and became the favourite son of the mainland Internet industry. The scenery is boundless for a moment, which shows the doting of Hong Kong investors to BABA.

In the following days, BABA experienced the global financial crisis in 2008, and the stock price did not improve due to Yahoo's struggle for corporate control. Finally, he was privatized at the same price as IPO at 13.50 yuan in 2012.

The reason for delisting, in Ma Yun's view, delisting can save BABA from the pressure of owning a listed company and formulate a long-term plan that is most beneficial to customers. The privatization offer can also provide an attractive cash-out opportunity for shareholders without having to wait indefinitely for the company to complete its transformation. Only by daring to give up today's success will it be possible for BABA to climb another tall building tomorrow.

Two years later, the company completed the transformation, and the group's businesses include B2B, Taobao, Tmall, cloud computing, entertainment, etc. (except Alipay). Ma Yun plans to list again with BABA, who has completed the integration, and the preferred destination is still Hong Kong. However, at that time, the HKEx insisted that it would not amend the terms of "one share, one right" for BABA, and at the same time did not recognize BABA's partnership system.

BABA also adhered to his own principles and did not make any changes for the HKEx. In desperation, BABA finally chose to go to the United States for listing.

BABA's second listing was officially listed on the New York Stock Exchange in September 2014. the offering price was $68 under the ticker symbol BABA, rising 38.07% on the first day of listing, the highest-raising IPO in the history of US stocks at that time. In the two months after going public, BABA's share price reached as high as $120.

But then, due to the volatility of global capital markets and the poor performance of the domestic economy. BABA's income growth and profit growth have fallen, and the share price has fallen all the way, falling as low as $57.20 per share.

However, the global economy gradually recovered. BABA started a 30-month bull market from the beginning of 2016 to mid-2018, and BABA's share price rose from US $60 to a peak of 211.7, a 3.53-fold increase.

Of course, this wave of growth dividends has been enjoyed by American investors. When we look back, if the HKEx was willing to make an exception for BABA at that time, then the people who enjoyed these dividends would have been our investors in Greater China.

Because of the "stubbornness" of the HKEx, more and more competitive new economy companies in China are listed in the United States. HKEx also recognizes the mistakes made that year. On December 15, 2017, the HKEx issued an announcement after the close, saying that it would broaden the Hong Kong listing system and set out the direction of development, that is, to allow different rights of the same shares and biotech companies that have not yet made a profit or have no income to list in Hong Kong.

In the following year, two well-known companies, XIAOMI and Meituan, successively took advantage of the institutional innovation of "the same share with different rights" to list their shares in Hong Kong smoothly.

The problem of different rights of the same shares has been solved, and it is also a matter of time to include companies with different rights of the same shares into the Hong Kong Stock Connect. BABA's return to Hong Kong stock listing is also a matter of course.

2，1688 VS 9988

Tomorrow, BABA will be listed on the Hong Kong stock market again, code 9988. Compared with 1688, 9988 of the board chairman and CEO are no longer Jack Ma, entering the post-Jack Ma era, or Zhang Yong era. Compared with 1688, 9988 has more diversified business and is already a giant enterprise. Compared with 1688, the revenue and profit scale of 9988 have increased a lot.

But the only thing that hasn't changed is BABA's original intention: there is no difficult business in the world. "

At the end of 2018, Jack Ma wrote a letter to shareholders for the last time as chairman of the board. He mentioned in his letter that BABA was transformed into a technology company nine years ago (2009), with a comprehensive layout in big data, cloud computing, artificial intelligence and the Internet of things, laying the foundation for manufacturing transformation in China and the world at large.

In everyone's impression, the impression of BABA probably still stays in Taobao Tmall. But at present, BABA is not only an e-commerce company, but also a giant enterprise across commerce, logistics, entertainment, cloud computing, finance and other fields.

In the era of Zhang Yong, BABA's new mission is: in the era of digital economy, there is no difficult business.

It can be seen from Zhang Yong's new mission that BABA hopes to create a commercial operating system to help enterprises achieve digital transformation and improve the competitiveness of businesses.

In fiscal year 2019 (April 1, 2018-March 31, 2019), the company achieved a total income of 376.844 billion yuan and a net profit of 80.234 billion yuan. In addition, during the three months from April 1, 2019 to June 30, 2019, BABA achieved a total operating income of 114.924 billion yuan and a net profit of 19.122 billion yuan.

BABA, who listed in Hong Kong stocks in 2007, has only B2B business, which is relatively easy to analyze. But today's 9988 is a business empire with many businesses, and it takes a lot of space to analyze each business one by one, and the average investor doesn't have to do everything, just grasp the big logic.

How to treat BABA's large number of business, we need to focus on two "flywheels"-2C business and 2B business.

On the C side of To, BABA has four growth drivers: user growth, business expansion, global expansion and new retail.

As of September 2019, the number of annual active consumers (AAC) on domestic e-commerce platforms Tmall and Taobao grew to 693 million, an increase of 19 million from the previous month. In addition, international market development is off to a good start, with Lazada and AliExpress reaching 130 million AAC in the international market as of June 2019.

In addition to e-commerce business, BABA also provides local services, digital entertainment and other services. Of the 670 million Taobao and Tmall AAC, only 25% are word-of-mouth and ele.me users, and only 12% are Youku members. It can be seen that the coincidence degree of the users of these services is not high, so it can be seen that there is great potential to improve user penetration.

But many investors asked that BABA, with a market capitalization of nearly $500 billion, ranks first among China's technology companies and sixth in the world. On such a large scale, can we still enjoy BABA's growth dividend?

This is about to focus on the second wheel, the To B business. At present, the dividend of domestic Internet To C business has been exhausted. BABA can be said to be the most successful enterprise in China from To C to To B business.

How big is the market?China spent $407 billion on IT in 2018, the United States 1.164 trillion, the domestic public cloud penetration rate of 10%, the United States public cloud penetration rate of 22%. There is still a lot of room to rise in the size of the market.

At present, IT expenditure in government and traditional industries reached $329 billion in 2018, higher than $78 billion on the Internet, but the investment in public cloud in traditional industries is still not high, so there is still potential in the future.

BABA's position in the To B business is very solid.Globally, Aliyun's market share is 7.7 per cent, just behind Amazon.Com Inc's 48 per cent AWS and Microsoft Corp's 15.5 per cent.

In Asia-Pacific, Aliyun's market share rose from 14.9 per cent in 2017 to 19.6 per cent in 2018, ahead of Amazon.Com Inc and Microsoft Corp, ranking first in Asia-Pacific.

In China, according to IDC data, according to 2019Q1 China's public cloud IaaS+PaaS data, Aliyun's market share increased by 0.3 percentage points to 43% compared with the second half of 2018.

3，Is the stock price cheap?

Why did BABA come back to list in Hong Kong? One of the reasons is that the US stock market is really "eccentric".

Wall Street attaches great importance to profit indicators, because the company is profitable, shareholders have money, it can be said that shareholders are supreme. This is contrary to BABA's idea that customers are the first, employees are the second, and shareholders are the third.

There is a company in the United States that is very similar to BABA. Its corporate culture can be described in two words: 1. Customers are paramount. 2. Focus only on long-term interests. This company is called Amazon.Com Inc.

Let's take a look at how the American market values Amazon.Com Inc. Amazon.Com Inc's market capitalization has been hovering around 900 billion this year, with commercial services excluding cloud services corresponding to $4000-500 billion. Amazon.Com Inc serves 400 million consumers worldwide, so the market capitalization of a single user is about 1000-125 billion.

According to the data of BABA Investor Day,On the C side, BABA serves 860 million users worldwide., including 670 million active domestic consumption, 60 million local life services, entertainment users, 160 million international business Lazada and other users

According to the valuation of the US market, BABA's C-end business should be valued at about $860 billion.

You might say that American consumers have a higher level of consumption and should value a higher single user, but Amazon.Com Inc's users are not profitable. BABA generates 17 billion EBITA profits on the C side every year, equivalent to a profit of US $20 per user.

On the B side, the income in the past 12 months was $6.8 billion. The total face value of strategic investments (including Ant Financial Services Group, etc.) exceeds 83 billion US dollars.

Even if the To B business is given away, BABA should be able to have a higher valuation with reference to the valuation of Amazon.Com Inc in the US market.

In terms of revenue and profit growth, BABA's growth is significantly higher than that of other technology giants, but there is no significant premium in valuation.。Excluding the acquired business, BABA's revenue grew by 37 per cent over the past 12 months. During the same period, Tencent 22%, Amazon.Com Inc 21%, Alphabet Inc-CL C 20%, Microsoft Corp 14%.

BABA's diluted Non-GAAP has earned $6.71 per share over the past 12 months. The current share price is $186.8, with BABA PE (TTM) = 27.8x. Tencent Non-GAAP PE (TTM) is 30.8x, Microsoft Corp is 26.8x, Alphabet Inc-CL C is 27.4, Amazon.Com Inc is 76.6x. You know, their revenue and profit growth is much slower than BABA.

4，Conclusion

Today, the Hong Kong Stock Exchange announced the price and allotment results of BABA's Hong Kong IPO. The Hong Kong IPO public offering is 41.44 times overbought. At one point, the dark market rose 5% later, surpassing the 3% discount on the issue.

Tomorrow, everyone will focus on the performance of China's largest technology company in Hong Kong stocks.

As I mentioned before, if the purpose of innovation is to soar in the short term, it is just a speculator.

As an investor, we should pay more attention to fundamentals, future development potential, talent mechanism, cultural system and corporate values. Considering from these aspects, BABA should be the best Internet enterprise in China at present.