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Summary of CMB International Securities Equity Research on Alibaba (BABA US)

Core Content and Key Views

CMB International Securities has issued an equity research update on Alibaba (BABA US), highlighting its expected performance and long-term growth potential. The report anticipates solid results for the second quarter of fiscal year 2021 (2QFY21E), with revenue and non-GAAP net profit projected to grow by 29% and 17% YoY, respectively, slightly below the consensus estimates. The company's core commerce segment is expected to show strong growth, driven by the continued expansion of its e-commerce and advertising businesses.

Key Financial Highlights

• Revenue Growth: Expected to increase from RMB 376,844 million in FY19A to RMB 1,042,774 million in FY23E, with a consistent YoY growth rate.
• Non-GAAP Net Profit: Projected to rise from RMB 93,407 million in FY19A to RMB 267,986 million in FY23E.
• Earnings Per Share (EPS): Anticipated to increase from RMB 38.0 in FY19A to RMB 96.5 in FY23E.
• P/E Ratio: The valuation at 26.9x FY22E P/E is considered not demanding, with a target price of US$354.5, up from US$334.9.
• Cloud Segment: Expected to achieve breakeven in the second half of FY21E, with revenue growth of 56% YoY in 2QFY21E.
• Digital Media and Entertainment (DME): Revenue is expected to grow by 7% YoY, with a lower contribution to overall profitability.

Revenue Breakdown

• Core Commerce: Expected to account for the majority of revenue, with growth of 29% YoY in 2QFY21E.
• Cloud Computing: Projected to grow by 56% YoY, with a significant improvement in profitability.
• DME: Revenue is expected to grow by 7% YoY, but with a negative adj. net margin.
• Innovation Initiatives and Others: Revenue growth is projected to be modest, with a slight decline in some quarters.

Earnings Revisions

• Earnings Revisions: The report slightly raises Alibaba's earnings for FY21E to FY23E, with an increase of 0.4%, 1%, and 1% respectively, reflecting improved margins from new business segments.

Valuation and Investment Rationale

• SOTP Valuation: The total equity value is estimated at US$965 billion, with a target price of US$354.5 based on a 31x FY22E P/E multiple.
• Catalysts: The report highlights upcoming events such as the "11.11" shopping festival, Ant's listing, and cloud breakeven as key catalysts for future growth.
• Margin Improvements: The adj. EBITA margin is forecasted at 26%, with core commerce showing strong profitability and cloud and DME segments improving their margins over time.

Analyst Ratings

• Ratings: The report maintains a BUY rating for Alibaba, citing its strong position to benefit from online consumption recovery and structural opportunities.
• Potential Return: The target price implies a potential return of over 15% over the next 12 months.

Shareholding and Performance

• Shareholding Structure: Major shareholders include SoftBank (24.9%), Altaba Inc (14.8%), and Jack Ma (4.8%).
• Share Performance: Over the past 12 months, the stock has shown a strong performance, with a price increase of 54.8% in absolute terms and 6.9% relative to the market.

Financial Ratios and Metrics

• Profitability: Gross margin is expected to remain stable around 44.7%, with adj. net margin declining slightly over the forecast period.
• Balance Sheet: The company is expected to maintain a net cash position, with a growing total equity and increasing cash reserves.
• Liquidity: The current ratio is projected to decline in FY21E, but is expected to stabilize in subsequent years.

Risk and Disclaimer

• Risks: The report acknowledges the inherent risks in investing in securities and advises investors to consult professional financial advisors.
• Disclosures: CMBIS has investment banking relationships with the issuers covered in this report and may have conflicts of interest.
• Legal Disclaimer: The report is intended for distribution to specific investors and may not be reproduced or shared without prior written consent.

Conclusion

Alibaba is viewed as a strong long-term investment opportunity, with solid performance expected in the upcoming quarter and continued growth anticipated from core commerce, cloud computing, and other emerging segments. The report recommends a BUY rating, with a target price of US$354.5, reflecting confidence in the company's future prospects and valuation.