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Breakingviews

Breakingviews - China's Ant can gobble up $200 bln valuation

An Alipay logo is seen at a cashier in Shanghai January 12, 2017.

HONG KONG (Reuters Breakingviews) - China’s Ant can gobble up a $200 billion valuation. The Alibaba-backed, financial technology firm on Tuesday filed for a dual Hong Kong-Shanghai listing, in what could be the world’s largest share offering ever.

The prospectus confirms Ant’s heft in China’s booming online payments market. The over 700 million monthly active users of its Alipay app provided $17 trillion worth of transactions in the 12 months ending in June. Revenues, mainly from fees charged to merchants, reached 26 billion yuan ($3.76 billion) in the first half of 2020.

But this digital cash management accounts for just over a third of Ant’s top line. Almost all of the rest comes from a distinctively Chinese version of financial technology. Alipay offers access to small business loans, consumer credit, money market funds, investment products, health insurance, and more.

It does that without taking credit or product risks. Those are for partners: commercial banks, insurers, fund managers and more. The partners pay for access and for Ant’s artificial intelligence, risk profiling and other technology. Those services are valuable, as the company’s overall 34.3% operating profit margin in the first half of 2020 testifies.

Ant is already huge, but there are more than a few crumbs for Ant to devour, thanks to China’s economic growth. Personal investable assets, to take one of many examples, are forecast to total 287 trillion yuan ($41.52 trillion) by 2025, according to research cited by Ant. That is up 79% from 2019.

Valuing this unique creature is hard. But putting the average 2020 earnings multiple of 49 times from U.S. payments peers PayPal, Visa and Mastercard on Ant’s annualised profits from the first half of 2020 gives a market value of more than $300 billion. That is well over the $200 billion or so cited by Reuters. With a limited supply of shares and a swarm of eager Chinese retail investors, a much higher number is possible.

Enthusiasts are likely to overlook the risk factors – regulatory, financial, and more – that make up nearly a tenth of Ant’s 674-page IPO filing. The tangled ownership structure and relationship with Alibaba are also concerns. Still, there’s plenty to like about Ant.

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