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US$6 Billion Brand Value Leaves Alibaba Smiling

13 August 2014
This article is more than 7 years old.

The Brand Finance China 100, released today, is an annual study conducted by leading brand valuation and strategy consultancy Brand Finance. Hong Kong and China’s biggest brands are put to the test and evaluated to determine which are the 100 most valuable.

Alibaba is this year’s highest new entry. Anticipation is mounting ahead of the company’s IPO, set to be the most valuable ever seen. The Alibaba brand, which brand finance has valued at $6 billion, will be a crucial motivating factor for investors. The brand underpins the company’s revenue stream (over $2 billion last year) and is poised to grow further. The IPO will not only provide a huge boost to consumer recognition of Alibaba internationally, and the involvement of international investors will hugely increase the breadth of stakeholders intent on building the brand.

The positions of the top five are unchanged from last year. China Mobile remains the most valuable brand, with a brand value of $31.8 billion, up from $23.3 billion last year. ICBC is second with a brand value of $22.8 billion, followed by fellow banks China Construction Bank ($19 billion) in third, Agricultural Bank of China ($17.8 billion) in fourth and Bank of China ($16.7 billion) in fifth.

PetroChina is in sixth placed having performed particularly well relative to international competitors. The brand value of most oil and gas companies has fallen or remained static this year, however PetroChina’s brand is worth $16.5 billion, a 27% increase on last year.

Other notable brands covered in Brand Finance’s study include Huawei, which has increased its brand value by 58% to reach a total of $8.7 billion. Though Huawei has faced regulatory hurdles in some western territories, the company and the brand in particular are growing rapidly. Huawei has just signed a two year global sponsorship deal with Arsenal FC that will brand equity particularly in the UK, but also in the many markets globally where Premier and champions league football are popular.

Moutai is another brand that appears to be mitigating the impact of government action. A clampdown on extravagant spending and corruption has proved a major challenge for all Baiju manufacturers. Kweichow Moutai has suffered reduced growth, however by cutting the price of its premium line in half and introducing more mid-price alternatives, it has defied analyst expectation to post 13.7% profit growth. Brand Value now stands at $4.2 billion.

The total brand value of China’s top 100 brands is now $426 billion, up from $321 billion in 2013. This is not merely a reflection of the growing scale of Chinese companies however. The Brand Value to Enterprise Value ratio (BV/EV) shows the proportion of a company’s value accounted for by the brand. It therefore acts as a rough guide of how well developed the brand is and how effectively companies are managing their intangible assets. The average for China’s top 100 brands is now 13.9% up from 10.6% last year and 7.6% in 2010. The average Brand Value to Enterprise Value for the world’s top 500 brands is (covered in Brand Finance Global 500 study) 16.3%, indicating that Chinese brands are rapidly on course to match the world’s best.

Commenting on the results, Brand Finance Chief Executive David Haigh stated, “Chinese brands are clearly developing rapidly. China was once known as the world’s great manufacturer, producing goods for brands owned elsewhere. The results of Brand Finance’s latest table show that China is more than capable of producing not just tangible assets, but hugely valuable intangible assets as well." Mr Haigh will be in Beijing on the 25th and 26th Spetember, leading the UK delegation at the international committee meeting to set the ISO 10668 standard on brand valuation.

Media Contacts

Konrad Jagodzinski
Communications Director
Brand Finance
Florina Cormack-Loyd
Associate Communications Director
Brand Finance

About Brand Finance

Brand Finance is the world’s leading brand valuation consultancy. Bridging the gap between marketing and finance, Brand Finance evaluates the strength of brands and quantifies their financial value to help organisations of all kinds make strategic decisions.

Headquartered in London, Brand Finance has offices in over 20 countries, offering services on all continents. Every year, Brand Finance conducts more than 5,000 brand valuations, supported by original market research, and publishes nearly 100 reports which rank brands across all sectors and countries.

Brand Finance is a regulated accountancy firm, leading the standardisation of the brand valuation industry. Brand Finance was the first to be certified by independent auditors as compliant with both ISO 10668 and ISO 20671, and has received the official endorsement of the Marketing Accountability Standards Board (MASB) in the United States.

Methodology

Definition of Brand

Brand is defined as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services, or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.

Brand Strength

Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors. Brand Finance evaluates brand strength in a process compliant with ISO 20671, looking at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance. The data used is derived from Brand Finance’s proprietary market research programme and from publicly available sources.

Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.

Brand Valuation Approach

Brand Finance calculates the values of brands in its rankings using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.

The steps in this process are as follows:

1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity, and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.

2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, while in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.

3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.

4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.

5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.

6 Apply the royalty rate to the forecast revenues to derive brand revenues.

7 Discount post-tax brand revenues to a net present value which equals the brand value.

Disclaimer

Brand Finance has produced this study with an independent and unbiased analysis. The values derived and opinions presented in this study are based on publicly available information and certain assumptions that Brand Finance used where such data was deficient or unclear. Brand Finance accepts no responsibility and will not be liable in the event that the publicly available information relied upon is subsequently found to be inaccurate. The opinions and financial analysis expressed in the study are not to be construed as providing investment or business advice. Brand Finance does not intend the study to be relied upon for any reason and excludes all liability to any body, government, or organisation.

The data presented in this study form part of Brand Finance's proprietary database, are provided for the benefit of the media, and are not to be used in part or in full for any commercial or technical purpose without written permission from Brand Finance.

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