In the latest yesterday about Alibaba, it is announced that Cainiao is likely to be the first Alibaba segment to be spun off.
The listing will be done on the Hong Kong Stock Exchange, where Alibaba is also listed under the 9988 stock code.
How Will it Benefit Alibaba Shareholders
Currently Alibaba owns a 48% stake in Cainiao. Alibaba has stated its plans to spin itself its divisions out separately so that each Division has the ability to be agile (and a smaller Alibaba means less scrutiny from the communist party as it becomes small)
With the listing, it will mean Alibaba shareholders will soon get the shares of Cainiao. This is similar to how Tencent gave its stake in Meituan to shareholders so as to become smaller. For Alibaba case, this means shareholders holding either Hong Kong shares or NYSE ADR will be getting Cainiao shares in the Hong Kong Market.
Valuation of Cainiao
Based on the private market valuation, Cainiao is currently worth between US$18 to US$26 billion.
Cainiao is the leading logistics player in China and plans to expand its footprint across Asia. While a logistics company may sound as an intensive business model, Cainiao has been utilising technology in their logistics operations to the extent that the driving of logistics between intercity highways is done autonomously and tracking in real time. The smaller e commerce players rely on Cainiao's logistics network. While the growth does seems good, anything above a market valuation of US$22 billion, will see me offloading my "Cainiao-to-be" shares. This is because i do not think Cainiao can grow to be more than a US$2 billion in net income company as each country in Asia have their own logistics company unless Cainiao intends to go on an acquisition spree which will burn its cash needs.
Therefore with 48% stake and assumed US$22 billion valuation, Alibaba shareholders will get about US$10.5 billion in shares as part of dividends. Prior to the announcement, Alibaba was valued at US$84 per share (market cap of US$216 billion).
How it Affects Alibaba's Current Share Price
My view is that the market has not priced in the value of Cainiao in its US$216 billion valuation (because Alibaba has a few Decacorns in its portfolio and a US$216 billion does not justify the sum of parts), therefore a potential US$10.5 billion in value could be unlocked. This means the unlocking of an additional 4.8%. Strangely, the magnitude of Alibaba's price increase yesterday was about the same magnitude (+4.9% increase). All in all, I expect Alibaba to continue trading at this US$88 mark.
Any fall below US$88 is a definite buy for Alibaba shares. However, given that Cainiao and future divisions spin offs are likely going to be listed in the Hong Kong Stock Exchange, it is strongly recommended for investors to buy Alibaba shares in the HK exchange so as not to have the problem of owning shares across two countries. A US$88 listing on NYSE equates to about HKD$86.5 on the Hong Kong Exchange.
I will be watching Alibaba on the Hong Kong market (9988) to see if there is a buying opportunity at the HKD$86.5 level.
The eventual spinoff of Alicloud (valued at US$60 billion) and ANT (valued at US$120 billion) will see Alibaba giving out more shares. The current valuations of Alibaba is undervalued and I do see a 110% upside in prices with the completion of the entire division spin offs.
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