South China Morning Post,
16 October 2007,
By Frederick Yeung
Listing candidate Alibaba.com, which kicked off its HK$1 billion global offering yesterday, forecast that its net profit this year would double, according to the global offering document.
The document also indicated that Alibaba.com's valuation would be between 78.7 times and 94.4 times this year's forecast earnings, based on the offer price range of HK$10 to HK$12. Market watchers said the high earnings multiple should not cool the expected hot response to the offering. The market capitalisation of Alibaba.com will be HK$60 billion based on the top end of the price range.
The valuation looks normal compared with other listed mainland internet plays. Hong Kong-listed Tencent Holdings, which provides instant messaging service to more than 200 million users in the mainland, is valued at 80 times of its historical earnings.
Nasdaq-listed Baidu.com, the mainland's largest search engine, is valued at 193 times its historical earnings, Bloomberg data showed.
"In the hot market sentiment at this moment, the earnings multiple is only for reference and investors should take the opportunity as the hot money is here," said an investor who attended the initial public offering presentation yesterday.
"The earnings multiple is a little higher than expected, but mainland technology plays in Hong Kong and China also delivered high growth in share prices."
Alibaba.com will sell 858 million shares, 90 per cent of which are slated for the international offering, with the remaining 10 per cent for Hong Kong retail investors.
Of the global tranche, 172 million shares will be distributed to Yahoo - which holds a 39 per cent stake in parent Alibaba.com Corp - the Kwok Family of developer Sun Hung Kai Properties, AIG Global Investment, Industrial and Commercial Bank of China (Asia), Wheelock and Co tycoon Peter Woo Kwong-ching and Robert Kuok, the controlling shareholder of the company that controls the South China Morning Post.
Alibaba.com, which claims to be the mainland's largest business-to-business e-commerce portal, set a profit forecast of at least 622 million yuan for the year to December, which represents a 184 per cent increase over the 219 million yuan earned last year.
For the half year to June this year, it had a net income of 295 million yuan, representing a 383 per cent growth over the same period last year.
Alibaba.com's existing shareholders will cash in HK$7.2 billion by selling existing shares and the company will receive HK$2.6 billion in new funding through issuing new shares in the offering if it is priced at the high end, the offering document said.
Alibaba.com will use 60 per cent or up to HK$1.57 billion for strategic acquisitions and business developments to boost the paying member base, to acquire new technology or establish alliances for brand building.
The company plans to use 20 per cent of the net proceeds for business expansion and 10 per cent to purchase computer equipment and develop new technology. The rest will be for general working capital.
Alibaba.com offers a platform for small and medium manufacturers to offer their wares to domestic and overseas buyers.
By the end of June this year, the portal had 24.5 million registered members, up 24 per cent from the end of last year. At the end of the June it had 256,000 paying members who can create their own dedicated pages on the site: 17 per cent more than at the end of last year.
The company generated 1.36 billion yuan in revenue last year, 84 per cent more than the previous year. Of that, 72.7 per cent came from businesses targeting international buyers by paying for the site's value added services.
In order to sustain its growth momentum, Alibaba.com is exploring the overseas market and has begun offering Gold Supplier membership packages to Hong Kong suppliers. In addition, it intends to develop country-specific marketplaces to provide tailored marketing services to exporters.
Alibaba.com also wants to attract more Japanese buyers by upgrading its Japanese language website later this year.
"The successful listing of Alibaba.com is totally based on the track record of Jack Ma, the company founder. He explored the e-commerce market in China when others invested in the portal but what will be the next step of the company?" said a fund manager from a local fund house who requested anonymity. "I do prefer Alibaba Group to list its new businesses like Taobao.com, a consumer auction site."
Yahoo can appoint an additional director in a four-member board of directors if Softbank interest in Alibaba.com Corp fell below an unspecified threshold by October 2010.
There has been some concern that both online companies would end up competing against each other in the mainland's online marketplace. The document maintained that this was unlikely to happen since Alibaba.com is business to business while Yahoo focuses on retail.
Yahoo and Alibaba.com entered into a non-competition agreement before Alibaba.com's listing.
Alibaba.com is not allowed to explore internet-based consumer business - other than an online payment platform and auction site - when seeking expansion outside the mainland.
Yahoo also is not allowed to acquire other mainland e-commerce business equal to 25 per cent or more of the annual revenues generated in the country by Alibaba.com.
