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The long-awaited expectation of countless mainland investors is finally becoming a reality!

Just today, Alibaba officially announced that it will add Hong Kong as its primary listing location, and will be listed on the main board of the Hong Kong Stock Exchange on August 28, and maintain dual primary listings in Hong Kong and New York.

The so-called dual primary listing means that both capital markets are the primary listing place. Alibaba was previously listed on the US stock market, and later returned to the Hong Kong stock market as a "secondary listing". Now that the Hong Kong stock market is also the primary listing place, the status is completely different.

More importantly, it can truly get a ticket to the Hong Kong-Shenzhen Stock Connect. The market expects Alibaba to officially enter the Hong Kong-Shenzhen Stock Connect on September 9.

By then, the two listed kings in China's Internet technology field, as well as a number of Internet giants such as Meituan, Xiaomi, and Kuaishou will finally be able to gather in the Hong Kong Stock Connect.

This will be a grand moment for mainland investors to officially "become" Alibaba shareholders through the Hong Kong-Shenzhen Stock Connect, and it will also be a major moment for Alibaba's value reassessment.

01

The big moment everyone is looking forward to

The Hong Kong Stock Connect has become the most dynamic trading channel for the Hong Kong stock market and an indispensable trading channel for Hong Kong listed companies.

So far, since the launch of the Hong Kong Stock Connect, southbound funds have seen a net inflow of HK$3.34 trillion. Today, the average daily trading volume of the Hong Kong Stock Connect is around HK$30 billion, sometimes even accounting for nearly half of all Hong Kong stock transactions, bringing extremely considerable valuation support and trading activity to Hong Kong Stock Connect companies.

Therefore, being included in the Hong Kong Stock Connect is the greatest honor for all Hong Kong-listed companies.

Previously, we mentioned in the article "Ali is winning back confidence" that for any Internet giant that has entered the Hong Kong-Shenzhen Stock Connect, the proportion of southbound funds holding in the total share capital in a stable period is generally more than 10%. Based on Alibaba's current market value of approximately 1.45 trillion yuan, the Hong Kong-Shenzhen Stock Connect will be able to bring Alibaba up to 145 billion Hong Kong dollars in potential incremental funds in the future.

Marvin Chan, Asia securities analyst at Bloomberg Business Research, believes that Alibaba’s inclusion in the Hong Kong-Shenzhen Stock Connect will have a positive impact on the stock as mainland investors’ shareholding in the stock is likely to reach double digits, similar to other technology giants.

A research report from Morgan Stanley pointed out that in the first six months after the inclusion of the Hong Kong Stock Connect, the incremental southbound inflows may be as high as US$12 billion, accounting for about 7% of Alibaba's total outstanding shares. In the long run, this percentage may stabilize in the low teens.

Even in the early stages of inclusion, southbound funds will be able to quickly bring tens of billions of incremental funds to Alibaba. This will be a huge bottom-up fund for Alibaba, which has an average daily trading volume of more than 3 billion Hong Kong dollars, and will be enough to drive its stock price to rise in the long term.

Taking Tencent, Meituan and Xiaomi, three representative large-cap companies, as examples, their stock prices rose by an average of more than 20% in the early days of entering the Hong Kong Stock Connect. In fact, two months before Meituan was included, the three exchanges in the two places reached a consensus on the inclusion of different voting rights structures in the Hong Kong Stock Connect, and the market began to predict that Xiaomi and Meituan would soon be included.

Meituan’s stock price subsequently began to rise continuously, and from the time the rumor first came out to the time it was finally included two months later, Meituan’s stock price actually rose by more than 70%. Similarly, Xiaomi’s stock price also rose by about 50%.

In fact, recently, there has been speculation that Alibaba will soon be included in the Hong Kong Stock Connect, and Alibaba's stock price has also shown a significant strengthening. Therefore, when Alibaba is included, its initial performance is also expected.

Not only that, Alibaba is expected to receive a large amount of southbound funds when it enters the Hong Kong Stock Connect, which will also attract other institutional funds, international capital and investors to form new expectations for it.

In particular, many international institutions and overseas individual investors were previously concerned about the potential risks of Alibaba's delisting from the U.S. stock market and did not dare to make large investments. Now that Alibaba will achieve a dual listing, this concern has been eliminated, which will definitely increase their interest in reinvesting in Alibaba.

International investment banks have recently begun to take action. Based on the expectation that Alibaba is expected to be included in the Hong Kong Stock Connect and its latest favorable performance, many institutions have also begun to increase their holdings significantly in advance.

According to the disclosure of U.S. stock institutional investors' holdings, HHLR, a subsidiary of Hillhouse Capital, bought 5.24 million shares of Alibaba, a 3638.32% surge in holdings from the previous quarter, making it the third largest holding, and its share in the investment portfolio jumped from 0.02% in the previous quarter to 5.98%.

H&H International, a well-known investor named Duan Yongping, also increased its holdings in Alibaba in the second quarter, increasing its holdings by 7.9%. Alibaba is now its fourth largest holding.

Scion Asset Management, a hedge fund owned by Michael Burry, the prototype of the movie "The Big Short", also "bought" Alibaba. The corresponding shareholding value reached US$11.16 million, accounting for 21.26% of its shareholding portfolio, making it the largest holding.

02

A huge opportunity for revaluation

Alibaba's intrinsic value, which has long been underestimated, and a series of positive changes in the past two years have given the market more confidence.

It is undeniable that in recent years, with the major changes in the macro environment, the weakening of the incremental dividend of China's Internet traffic, and the intensified competition among e-commerce platforms, Alibaba has also faced a lot of pressure.

However, Alibaba did not avoid these difficulties and problems. In the past two years, Alibaba has continuously and timely carried out a series of strategic adjustments and innovations in its business and organizational structure.

In its 2024 financial report, Alibaba clearly stated that it would re-examine its strategic priorities, shrink a large number of external non-core businesses and non-core investments, focus on its two major businesses of e-commerce and cloud computing, participate in market competition with a more active attitude, and improve operational efficiency and market responsiveness.

The effects of the reform were immediate.

Alibaba's latest quarterly financial report shows that Taotian Group achieved revenue of 113.373 billion yuan this quarter, with adjusted EBITA of 48.810 billion yuan, and profitability remained stable. At the same time, the number and frequency of Taotian Group's product purchases are also rising, and the order volume has achieved double-digit year-on-year growth. GMV has increased by high single digits, and Taotian's market share has remained stable. Among them, the number of 88VIP members continued to grow by double digits year-on-year, and the membership scale exceeded 42 million.

At the same time, Alibaba's cross-border business showed strong growth potential, with its International Digital Business Group (AIDC) revenue increasing 32% year-on-year to 29.293 billion yuan. Thanks to the growth of cross-border business and logistics fulfillment solution revenue, Cainiao's quarterly revenue increased 16% year-on-year to 26.811 billion yuan.

In addition, due to improved operational efficiency and expanded business scale, Alibaba's Local Life Group also achieved a significant reduction in losses, with revenue increasing 12% year-on-year to 16.229 billion yuan.

Under the current relatively unfavorable complex macroeconomic factors at home and abroad, although Alibaba's overall profits are still facing considerable pressure, the growth in these business revenues is already commendable enough, and also reflects the effectiveness of the company's strategic transformation.

As Alibaba Group CEO Wu Yongming said in a conference call, "We have seen a significant improvement in the profitability of our businesses, and this trend will continue. We estimate that most businesses will achieve break-even within one to two years and gradually begin to contribute to scale profitability."

Around the time when Alibaba released its latest earnings announcement, 15 domestic and more than a dozen international investment banks including BlackRock, Nomura, Barclays, Daiwa, and Bank of America Securities updated their ratings, almost all of which reiterated positive ratings of buy, increase holdings, or increase target prices. This shows that Alibaba's reform measures and performance improvement have been widely recognized.

In fact, for investors, Alibaba has another important potential business that deserves more attention - cloud intelligence business, which also includes the AI ​​business that the market pays the most attention to.

In the latest fiscal quarter, Alibaba's Cloud Intelligence Group's revenue was 26.549 billion yuan, a year-on-year increase of 6%; adjusted EBITA grew strongly by 155% year-on-year, mainly due to double-digit growth in public cloud business and continued triple-digit year-on-year growth in revenue from AI-related products.

Although the scale of this business is relatively small, we should not ignore the new background of the current era - AI is becoming the hottest technological trend in the world.

Although the current AI field is generally recognized by the market to be dominated by several major American technology giants such as NVIDIA, Microsoft, Apple, and Google, in fact, many Chinese technology giants also have considerable advantages.

Alibaba is the only company in China that has both leading AI cloud services and the largest open source AI model. Alibaba's new open source model Tongyi Qianwen Qwen2-72B has leading performance and is the world's strongest open source model.

Alibaba's AI technology has long been deeply integrated into its core businesses such as e-commerce, logistics, and cloud computing, building an extremely rich AI ecosystem. Recent financial report data shows that thanks to the continuous construction and improvement of Alibaba's AI ecosystem, its AI business has been showing a rapid growth trend.

In an era when the entire market is striving to develop AI, the future growth space of Alibaba's AI ecosystem is undoubtedly worth looking forward to. However, in recent years, the market has focused more on the competitive landscape of Alibaba's e-commerce business, and has not given Alibaba AI a full and reasonable value premium.

But now, with Alibaba's strategic adjustment and reform, the e-commerce business has regained vitality, and it is about to be included in the Hong Kong Stock Connect. This business will also usher in a major opportunity for re-valuation along with Alibaba's entire system.

03

A new starting point for Hong Kong Stock Connect and Alibaba

As we all know, the future competition among countries in the world will be a competition of technological strength, among which the Internet can be said to be the core area that integrates the most advanced technologies.

For investors, Internet technology giants represent not only the country's future technological competitiveness, but also represent enormous investment value that cannot be missed.

At present, China's core Internet technology companies are concentrated in the Hong Kong stock market, especially Tencent, Alibaba, Meituan, Xiaomi and other core giants in various fields, which can only be bought in Hong Kong or US stocks. The only way for mainland investors to participate in investing in these companies is through the Hong Kong Stock Connect channel, except for a small number of cross-border funds.

We hope that more such Internet technology companies will be included in the Hong Kong Stock Connect, just like the giants such as Tencent, Meituan, and Xiaomi that have already been included, and share the value growth returns with investors across the country.

At the same time, we are also more eager for these listed companies that represent the most powerful Chinese Internet technology to truly become the mainstay of the Hong Kong or Chinese market, just like the "mag7" seven sisters in the US stock market, constantly leading the development of Chinese technology and leading the trend of the times.

We also expect that the moment Alibaba is included in the Hong Kong Stock Connect will mark the beginning of the "Seven Sisters of Chinese Capital" leading the Hong Kong stock market out of the shadow of decline.