As the largest IPO company in the history of the global capital market this year, Ant Group's every move has attracted the attention of global investors, but there is no doubt that one of the most concerned issues is the valuation of Ant Group.

So, how much is the Ant Group worth?

In this regard, I try the above three articles to answer the above questions.

In essence, what I wrote before"once the Ant Group is listed, how many billion yuan will the wealth of Jack Ma, the richest man, increase? | | valuation series "That is, the previous part, but because the Ant Group had not yet submitted the prospectus, and the financial and operational data were not disclosed, so in the first part, it mainly discussed how to treat the Ant Group. And which valuation method should be adopted to estimate the target price of Ant Group.

And this article "An overview of the target prices of major brokerages across the country for Ant Group | valuation series"it is the middle part. After Ant Group has submitted its prospectus and disclosed its financial and operating data in detail, investors have sufficient conditions and data to estimate the specific target price of Ant Group. Therefore, on the eve of the listing of the Ant Group, it is necessary for investors to pay attention to the target prices given by the major securities firms, so as to understand how the institutions with pricing power and market influence view the value of the Ant Group.

As for the second part. "How much is the Ant Group worth? For this reason, I have built a valuation model | valuation series"it will also be released before the Ant Group officially goes public, please look forward to it.

Back to the theme of this article, it is mainly divided into three parts: (1) the brief introduction of the Ant Group and the core financial and operational data; (2) the valuation methods and core values used by the major securities firms across the country when valuing the Ant Group, and the final target price; (3) the conclusion and the valuation range of the Ant Group. Next, it will be presented one by one.

1. Brief introduction of Ant Group and core financial and operational data

What kind of company is Ant Group? This answer can be called thousands of people, but in the view of Ant Group itself, they are not only the parent company of Alipay, China's largest mobile payment platform, but also the leading open platform of financial technology. committed to technology and innovation to promote the digital upgrading of the global modern service industry, including financial services, and work together to provide inclusive, green and sustainable services for consumers and small and micro operators. Bring small and beautiful changes to the world.

From the perspective of specific business, according to the data caliber of H1 in 2020, Ant Group currently has three major businesses, with a total revenue of 72.5 billion yuan in the first half of 2020. The first major business is the digital financial technology platform, corresponding to 46 billion yuan in revenue, accounting for 63% of the total revenue. The second largest business is digital payment and merchant services, corresponding to 26 billion yuan, accounting for 36% of the total revenue. The third business is innovation business and others, with corresponding revenue of 500 million yuan, accounting for 1% of the total revenue, which is basically negligible.

It can be seen that the core of the analysis and valuation of Ant Group should be the first major business and the second largest business. After all, both account for 99% of the total revenue, while as the third largest business, innovation business and other services, including ant chain technology services, financial cloud technology services and other innovative technology services. At present, it is only a prototype, even if the revenue increases tenfold, it is only 5 billion yuan, which is more than an order of magnitude different from the business of the other two sectors. However, it is worth mentioning that the ant chain is the global blockchain technology leader. In 2017, 2018, 2019 and the first half of 2020, Ant Group ranked first in the world in the number of blockchain-related patent applications.

Looking through Ant Group's prospectus, its so-called first major business, that is, digital financial technology platform business, specifically refers to ants by assisting financial institutions (such as commercial banks, public funds, insurance companies) to provide micro-loan, financial management and insurance services to users on their platform, and charge financial institutions a certain percentage as a technical service fee. Specifically, Ant Group's digital financial technology platform business can be further divided into: (1) micro-loan technology platform business; (2) financial management technology platform business; and (3) insurance technology platform business. In terms of industry status, Ant Group has become the industry leader in every segment of the industry, which fully illustrates the competitiveness of Ant Group.

The second largest business of Ant Group, that is, digital payment and merchant services, specifically refers to the fees charged by Ant Group for providing collection services to tens of millions of merchants at home and abroad, as well as the use of a variety of marketing tools and strategies, service fees charged to assist merchants in marketing. In addition, it charges fees for financial and personal transactions. In terms of industry status, Ant Group is the largest digital payment service provider in China, with a total payment transaction volume of 118 trillion yuan and a market share of about 52 per cent in the 12 months to June 30, 2020.

To sum up, it is not difficult to see that Ant Group has a very strong core competitiveness, after all, it has achieved the status of NO.1 in various segments of industries and plates.

So what is the financial performance of Ant Group? In terms of revenue and net profit alone, the compound annual growth rate of Ant Group from 2017 to 2019 was as high as 36% and 48% respectively, and in the first half of this year, even though affected by the epidemic, Ant Group's revenue and net profit still recorded ultra-high growth rates of 38% and 1059% (or 10 times) respectively.

After having a basic understanding of the Ant Group, let's take a look at how the major securities firms across the country value and price the Ant Group.

two。 Valuation methods, core assumptions and given target prices used by major securities firms across the country

Based on the huge size and influence of Ant Group, although Ant has not yet been listed, so far, a number of brokerages have estimated its valuation. Below, we will focus on the major brokerage valuation methods of ants, core assumptions and the final given target price.

(1) Guoxin Securities values Ant Group at 1.7 trillion-2.5 trillion yuan, and the corresponding target price per share is 56-78 yuan.

First of all, Guoxin Securities specifically adopts absolute valuation method and relative valuation method to estimate the reasonable value range of Ant Group. It should be noted that Guoxin Securities is calculated according to 30.039 billion shares of share capital, which is the lower limit of the number of shares disclosed in the prospectus.

Secondly, when using the absolute valuation method, Guoxin Securities specifically adopts the FCFE valuation method. The core assumptions include the weighted average cost of capital, that is, WACC=10%, the sustainable growth rate, that is, 5%. The forecasts for revenue growth and gross profit margin are detailed in the table below.

Based on the above core assumptions, Guoxin Securities also conducted a sensitivity analysis for WACC and g, as detailed in the table below.

Finally, when using the relative valuation method, Guoxin Securities selected comparable companies including Tencent, BABA and Oriental Wealth, using the PE method to value. With reference to the valuation of comparable companies and taking into account the scale factor, Ant Group is finally given 40 times 60 times the 2020 PE, and the corresponding reasonable price range is 56 yuan 84 yuan.

(2) China Merchants's valuation of Ant Group: if the Ant Group is given 30 times 50 times PE, the market capitalization of Ant Group is 1.3 trillion ~ 2.2 trillion yuan when it goes public.

For Ant Group, China Merchants only uses the relative valuation method, which assumes revenue growth of 37 per cent, 30 per cent and 30 per cent respectively in 2020-2022, and 157 per cent, 31 per cent and 30 per cent growth in return net profit in the corresponding years. Then, based on the calculation of the total share capital of 30.483 billion shares after the over-allotment right of this issue, the estimated earnings per share from 2020 to 2022 will be 1.43,1.88 and 2.44 yuan respectively. Finally, considering that Ant Group's overseas comparable companies, such as Visa Inc, MasterCard, PayPal Holdings Inc and American express, also have a median valuation of 40 times, if Ant Group is given 30 times 50 times PE, the value at the time of listing is about 1.3 trillion-2.2 trillion yuan.

(3) the valuation of Ant Group by Sino-Thai Securities: 1.9 trillion ~ 2.5 trillion yuan

For Ant Group, Sino-Thai Securities mainly adopts the price-to-earnings ratio in the relative valuation method to explore the value of ants. The general logic of its valuation and profit forecast is as follows:

A) valuation reference PayPal Holdings Inc and related Internet companies: PayPal Holdings Inc, as the leading third-party payment company in the world, its high valuation level is supported by market space and competitive advantage, with the PE hub at 45-50 times. Considering the characteristics and scarcity of the ant group model, Tencent, BABA and Oriental Wealth are included as comparable valuations.

B) Target market capitalization: combined with the valuation of comparable companies and the scarcity of the ant model, and considering the proportion of profits in financial business, Ant Group is given 45-60 times PE, corresponding to the 2020 target market capitalization of 18720-2.496 trillion RMB.

(4) valuation of Ant Group by Societe Generale Securities: 1.8 trillion

For Ant Group, Sino-Thai Securities mainly adopts the segment summation method (SoTP) to estimate. The general logic of its earnings forecast and valuation is as follows:

A) the company's revenue forecast for 2020-22 is 171.1 billion / 228.7 billion / 297.7 billion, and profit forecast is 40.1 billion / 48.6 billion / 61.2 billion

B) at the same time, the SOTP segment is valued according to business attributes and growth, and the target companies include PayPal Holdings Inc, Lending Club, 360Finance, Charles Schwab Corp and Oriental Fortune.

C) the total business valuation is RMB 1.7723 trillion, corresponding to their profit forecast for Ant Group in 2021, which is about 36 times PE.

3. Conclusion, and valuation map

If we take the four brokerages that have announced the target price of Ant Group as the market pricing, considering that the average valuation of Ant Group is as high as 1.95 trillion yuan, while the IPO valuation of Ant Group is 1.58 ~ 1.75 trillion yuan, even if Ant Group is in accordance with the upper limit IPO, the probability of listing on the first day will rise. Of course, the above market pricing only represents the views of the four brokerages on Ant Group, and it does not represent my personal point of view.