Alibaba.com announced the company, Alibaba Group and the IPO joint book runners have agreed to waive the Cornerstone investors from a 24-month shares lock-up period, which is scheduled to terminate in Nov 09. In addition, the company said it has no intention conducting equity financing in the near term.
According to company filings, eight Cornerstone investors subscribed 157.76m shares at HK$13.50/share, and the release of lock-up would lift the public float by 14% (from 22% to 25%) to 1.3b shares.
Typically, a listed company prohibits cornerstone investors to sell their IPO shares for six to 24 months. Although management said the early termination is entirely the company’s decision, which aims mainly to improve the public float after seeing the recent increase in trading volume, we do not see any particular shareholder having an immediate need to liquidate his Alibaba.com shares for the purpose of improving his capital structure. We believe the decision may hurt sentiment and create short-term pressure on share price.
We maintain our forecasts and target price. In the mean time, we see share price catalysts include Chinese monthly exports figures before the interim results due in late-August.
Sudden placement by any cornerstone investors, or a change in shareholding relationship with Yahoo! Inc..
In the past two quarters, we have seen Alibaba.com’s strategic transformation bringing positive results in its operating performance (including pick-ups in total register users and paying subscribers growth despite the poor macro environment). However, with the deferred revenue recognition mechanism, the impact on performance improvement will only begin to reflect on next year’s earnings. With concerns from the early lock-up termination and the macro uncertainty not fading away yet, we maintain HOLD with entry price of HK$7.20.
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