Ant Group IPO: What you need to know

-- | 09/10/2020

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Holly Black: Welcome to Morningstar I'm Holly Black with me is Chelsey Tam, she's an analyst at Morningstar in Hong Kong.


Chelsey Tam: Hello.

Black: So, Chelsey, we've seen this month the IPO, the flotation of Ant Group. It's the biggest IPO ever. Can you tell us a little bit about this company?

Tam: Yeah, sure, so Ant is the largest unicorn right now in the world, and it's a fintech giant in Mainland China, it has a payment platform with users over 700 million in terms of monthly active users, and it also provides services such as credit, investments, and insurance.

Black: So, it's been quite hyped up this stock market listing you've been looking at the company for a while. What are some of the things to like about this stock?

Tam: Yeah, I think the main sort of attractiveness of this stock is that it has a huge network apparently as I just mentioned more than 700 million monthly active users and it has 80 million merchant base as well. And then it has a payment business where the margin is probably relatively low, but they monetize the network through the credit business and the investment business and the insurance business so that they are able to cap the invest -- the market that is not traditionally served by the financial system in China.

Black: And what are the risks? What are the reasons to be cautious for anyone considering investing?

Tam: There are a number of risks, but then there are two risks that we will highlight. The first one is that there's a regulation about the unification of QR code. That just means that more competitors are more likely to be able to compete in the payment market, although we think that the risk is not significant. The other one is the potential interest rate cap that could reduce the interest income ramping.

Black: And people might also be considering similar alternative stocks. Competitors that have perhaps got a longer track record. Are there any stocks that Morningstar covers in this area?

Tam: Well, I wouldn't say that the other major competitor necessarily have a longer track record, but then Tencent, which I cover it also has a fintech business and it's also a hidden gem.

Black: And finally, something that Morningstar analysts look at when they are putting a fair value on a stock is whether it has an economic moat that we know that's a very important thing for a business. Does Ant have a moat?

Tam: Yes, it does. So, it has a wide moat based on network effects and also intangible asset. The intangible asset is actually coming from the relationship with Alibaba but really really strong ties and collaboration with wide moat Alibaba. And it also has a positive moat trend.

Black: And if I were considering investing in Ant, why would I invest in Ant and not in Alibaba as the two are so tightly close?

Tam: Yeah, so I guess it depends on the exposure that you want. So, Alibaba is more like a eCommerce giant, but it has a lot of other businesses as well. For example, I think cloud is going to be a big one, but if you want a financial impact exposure then I think you can consider Ant Group as well.

Black: Chelsey, thank you so much for your time. For Morningstar I'm Holly Black.

This report appeared on 2021 Morningstar Australasia Pty Limited

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