20180202-招商证券_香港_-FY18E_rev_guide_up,_margin_pressure_from_new_retail__BUY_11页_1mb

Alibaba (BABA US) Report Summary

Core Content

This report provides an analysis of Alibaba Group's financial performance and strategic initiatives for FY3Q18 and future forecasts. It highlights the company's strong revenue growth, margin pressures from New Retail initiatives, and the strategic acquisition of a 33% stake in Ant Financial. The report also includes financial data, key business highlights, and valuation metrics.

Main Points

Revenue and Earnings Performance

• FY3Q18 Revenue: Increased by 56% YoY to RMB83bn, beating the consensus by 5%.
• Non-GAAP Earnings: Missed by 1%, primarily due to higher foreign exchange losses and lower profit share from Ant Financial.
• Revised FY18E Revenue Guidance: Up to 55-56% YoY (from 49-53% YoY), implying 48-52% YoY growth for FY4Q18.
• Non-GAAP Net Profit: Revised forecasts for FY18/19/20E show growth of 6% / -4% / -2% respectively.

Revenue Drivers

• China and International Commerce Retail: Strong growth due to customer management and commission revenue.
• Cloud Computing: Revenue accelerated to 104% YoY, driven by paying users and complex offerings.
• New Retail Initiatives: Full quarter impact of Cainiao Network consolidation and Hema's expansion to 25 stores by end of 2017.

Strategic Moves

• Acquisition of Ant Financial Stake: Alibaba acquired a 33% equity stake in Ant Financial, ending the previous profit share scheme. This is expected to enhance New Retail strategy and user retention through Alipay.
• User Growth: Alipay Wallet's daily active users doubled YoY in December 2017 due to aggressive user acquisition and engagement strategies.

Margin Pressures

• Ongoing Margin Pressure: Increased spending on New Retail, cloud, and logistics is expected to continue pressuring margins.
• Non-GAAP EBITDA Margin: Revised down to 42% / 37% / 38% for FY18/19/20E, reflecting the impact of investments.

Key Information

Financial Highlights

• Revenue Growth:
  • FY16: 33%
  • FY17: 56%
  • FY18E: 55%
  • FY19E: 38%
  • FY20E: 29%
• Non-GAAP Net Profit Growth:
  • FY16: 24%
  • FY17: 40%
  • FY18E: 48%
  • FY19E: 20%
  • FY20E: 34%
• Non-GAAP Diluted EPS:
  • FY16: RMB 9.33
  • FY17: RMB 8.57
  • FY18E: RMB 10.61
• P/E Ratio:
  • FY16: 72.9
  • FY17: 55.2
  • FY18E: 37.0
  • FY19E: 29.9
  • FY20E: 22.8

Valuation

• Target Price (TP): US$224, unchanged from previous estimates.
• P/E (FY19E): 31x as of March 2018.
• PEG Ratio: 1.0x, indicating a discount compared to 1.6x for Tencent, 1.6x for Amazon, and 1.8x for Baidu.

Market Share and Growth Catalysts

• Market Share Gain: Continued investment in key businesses such as e-commerce, payments, logistics, and entertainment.
• AI and Big Data: Focus on monetization through AI and leveraging big data for long-term value creation.
• Growth Catalysts:
  • Algorithm improvements in 2018.
  • New Retail initiatives driving traffic and growth.
  • Long-term capability in AI and big data monetization.

Key Business Highlights

• Core E-commerce: Revenue up 57% YoY to RMB73bn; non-GAAP EBITA margin 53% (down from 57% last quarter).
• Cloud: Revenue up 104% YoY; adjusted EBITA margin stable at -5%.
• Digital Media and Entertainment: Revenue up 33% YoY to RMB5.4bn; adjusted EBITA margin improved to -41% from -60%.
• Ant Financial: Profit share scheme terminated; 33% equity stake acquired without cash outlay.

Financial Table Summary

Conclusion

The report reiterates a BUY recommendation with a Target Price of US$224, highlighting Alibaba's strong revenue growth and strategic initiatives. Despite margin pressures from New Retail and increased spending, the company is expected to benefit from its focus on AI, big data, and market share expansion. The valuation suggests a discount compared to peers, making it an attractive long-term investment.