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ALIBABA HK IPO..... (Investment Profit Overdrive)

Pre IPO

Alibaba announced second public listing in Hong Kong had got me excited about this stock again. The listing will be the biggest IPO listing in HKSE. I had been "hibernating" since I sold out all my BABA shares back in March 2019 for $180. You can click on my link below to read about this trade back in early 2019.

Other Posting link: Click here:
 ALIBABA 2019 ....... Feasting with 40 Thieves (Part-1)



The major Setup

Back in Oct 2019 it was trading at around $160-$170 range, same level as 2017. In my opinion, this stock is way under-value, the company's revenue and profit have been growing at North of 40% every year and yet the share price stuck at 2017 level. For me, this is a perfect setup for major breakout. Just like a pressure cooker, you keep pumping steam (profit) into same pot size never increase (Stock price). It will going to pop anytime when you lift the lit.   



There are 2 major events took place in Nov which I hope will boost its share price before the IPO kick in.

1. Quarter Sep 2019 earning announcement 1.11.2019 - The results was fantastic!  
Revenue was RMB119,017 million (US$16,651 million), an increase of 40% year-over-year.
Non-GAAP net income was RMB32,750 million (US$4,582 million), an increase of 40% year-over-year.
2. Global Shopping Event 11.11.2019 - Voila!
Generated US$12 Billion of GMV in the First Hour of the Global Shopping Festival.
Generated RMB268.4 billion (US$38.4 billion) of gross merchandise volume (GMV) in 2019, an increase of 26% compared to 2018.
So, I put up a huge positions for BABA in Oct, hoping to profit from those events above. It was a gamble, but the risk is well managed with the low share price. Both events had past with much fanfare, but yet the share price failed to lit up. To my disappointment, it bounce around $170.  

Post Mortem

It was a very disappointing indeed. The stock failed to ignite was not due to company's performance. It had done very well on both financial matrix and major sales events like "Single Days". It was mainly due to external factors. 2 major events keep people from investing in BABA and analysts were bearish about:
  1. China GDP and companies profitability decelerating - there was concern it might affecting consumer spending sentiment.
  2. China-US trade war drag on - the flight to safety was so great to avoid more damage from the tariff increase.
The pressure in the cooker keep building. I double down my investment in BABA, as I think the China GDP had no impact on consumer spending as the middle income class keep expanding and the trade war will resolved eventually given that Mr. Trump need that badly to boost his rating. No turning back for me as I put my wager down. I'm hoping that the new HK IPO will pop open the lit and let the steam out.   

The IPO (Investment Profit Overdrive)

Alibaba Group announced to raise US$12.9 billion from its landmark Hong Kong listing and is set to price its shares at HK$176 (S$30.62) each, start trading on 26 Nov 2019. Shares of Chinese e-commerce giant Alibaba saw a strong debut in Hong Kong surged more than 6% at debut, intraday high of HKD189.50.
Since the HK IPO listing, BABA share surge almost daily hitting it 52 week high within 2 weeks. The cooker's lit had finally popped open, letting the steam out. The truce reached in the China-US trade war back in Dec-14 had bring back much needed boost for this Chinese stock. Turning a "flight to safety" trade, avoid all "Chinese stock" event into "risk on" overdrive. 
Alibaba currently trading at USD215 after 1 month since IPO. Up > 20% since my last bought.  Hey, I'm not popping my champagne yet and not selling my stake. I think the surge is not over yet, there are few more events may add more "boost" to the share price. I'm looking at next 2 major events that will be significantly impact the valuation of the stock price. 
  1. Inclusion into Shanghai Stock Connect - this inclusion will open a floodgate of 100 millions investors in China eligible to invest in this HK biggest IPO stock. This will help boost the share price valuation. 
  2. Inclusion into the major world Index -  Due to its capitalization size, it will be include into major index such as Hang Seng Index and MSCI China etc. This will drive up the buy side demands from index fund managers' portfolio that require mirroring the index performance. 

Personal notes:

I like to read especially books about investing. However, I didn't read much as I would like to in 2019. One of my new year resolution in 2020 is to read more. This is for my own personal development. Always stay humble and stay hunger for knowledge. I hope I can complete 1 book per month and hopefully I can share some of my read in this blog. Currently I'm reading this book below.
Cheers and enjoy the remaining 2019 before it is gone. Happy New Year 2020 to all. This Chinese drama " The legend of white snake" debut in 2019, I find it very entertaining to watch. Hope you will like it too.

- WILLIAM CHENG

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