Alibaba’s plan to split into six business units has spurred a rally for Chinese technology groups, with traders seeing the move as the latest sign that Beijing’s rolling crackdown on the sector was coming to a close.
Alibaba’s Hong Kong-listed shares rose more than 13 per cent on Wednesday, following similar gains for the stock on Wall Street, while the Hang Seng Tech index tracking the largest technology companies listed in Hong Kong climbed more than 3 per cent.
Shares in Japanese tech investor SoftBank, one of Alibaba’s most important early investors, added more than 6 per cent in Tokyo.
Strategists and analysts said the radical shake-up to Alibaba’s corporate structure, which people familiar with the matter said had received positive feedback from regulators prior to the announcement, reflected a shift by internet groups to become more responsive to Beijing’s policy priorities. The move would also serve to bolster profits in the wake of a long share price slump for the sector’s biggest names.
“Big internet firms appear to be changing strategy, from expanding platforms across verticals to downsizing and focusing,” said Winnie Wu, China equity strategist at Bank of America. “[Alibaba’s] break-up may be an important experiment.”
Wu said such splits “may help insulate the impact of [regulatory] risks” for the newly independent units, since “different subsidiaries can have varied data disclosure and auditing arrangements, and US investors can invest in ecommerce without touching the AI part”.
Shares in Chinese tech groups had already received a boost this week after Alibaba founder Jack Ma on Monday appeared publicly in mainland China for the first time in a year, as Beijing seeks to boost investor confidence in its support for the country’s private sector.
Under its new plan, Alibaba will install a separate chief executive and board at its different business units, which can each “pursue independent fundraising and IPOs when they are ready”, Alibaba chief executive Daniel Zhang said.
Analysts have responded positively to the new structure, with some voicing hopes that spinning off these businesses will help mitigate what they describe as a “conglomerate discount” by the market, which values Alibaba as a whole less than the sum of its parts.
“We think reorganisation empowers different business units to respond quickly to market changes and enhance decision-making,” analysts at Jefferies wrote in a note. “In our view, this is an important organisational change, and [the new structure] leads to flexible and leaner management, supported by its middle and back end infrastructure.”
Goldman Sachs analyst Ronald Keung said the potential positive impacts of the plan “could outweigh potential negatives” such as reduced synergies among Alibaba’s businesses and added the move “demonstrates management’s commitment towards further improving profitability”.
But among the more than 70 equity analysts following Alibaba, none of the 10 that have so far issued notes on the restructuring have upgraded their 12-month price targets for the company, according to Bloomberg data.
Keung cautioned that Alibaba’s rival JD.com had “long pursued subsidiaries’ separate listing”, only to have the market price in an even steeper conglomerate discount for its holding company, which Goldman now estimates at 46 per cent.