20180706-招商证券_香港_-FY1Q19_outlook__tough_top-line_comp_and_margin_pressure_5页_1mb_1mb

Alibaba (BABA US) Summary Report

Core Content Overview

This report provides an analysis of Alibaba Group's financial performance and outlook for FY1Q19 and beyond, highlighting both challenges and growth opportunities. The report is prepared by China Merchants Securities (HK) Co., Ltd. and includes financial data, valuation metrics, and investment ratings.

Key Financial Highlights

Revenue Growth

• FY16-FY18: Revenue grew significantly, from RMB101,143 million to RMB250,266 million, with a CAGR of 58%.
• FY19E: Projected revenue of RMB398,937 million, with a growth rate of 59% YoY.
• FY20E: Expected revenue of RMB566,590 million, with a growth rate of 42% YoY.

Non-GAAP Net Profit

• FY16-FY18: Non-GAAP net profit increased from RMB42,962 million to RMB85,766 million, with a CAGR of 42%.
• FY19E: Projected non-GAAP net profit of RMB104,042 million, with a growth rate of 21% YoY.
• FY20E: Expected non-GAAP net profit of RMB151,545 million, with a growth rate of 46% YoY.

Non-GAAP Diluted EPS

• FY16-FY18: Non-GAAP diluted EPS increased from US$2.64 to US$4.98.
• FY19E: Projected non-GAAP diluted EPS of US$6.24.
• FY20E: Expected non-GAAP diluted EPS of US$8.92.

Valuation Metrics

• P/E Ratio: Decreased from 70.8 in FY16 to 29.9 in FY19E.
• EV/EBITDA: Reduced from 57.2 in FY16 to 21.9 in FY19E.
• ROE: Dropped from 39.4% in FY16 to 16.1% in FY19E.

Outlook and Key Factors

FY1Q19 Performance

• Top-line Pressure: High content costs, Ant SBC, and RMB depreciation are expected to weigh on earnings.
• Margin Pressure: Content cost amortization will significantly impact the Digital Media & Entertainment segment's adj EBITA, estimated to decline by -27ppts/-17ppts.
• Buy Recommendation: Reiterated as BUY with a target price of US$262, indicating potential upside of +40% from the previous price of US$186.88.

World Cup Impact

• Short-term Impact: Increased content and bandwidth costs will pressure margins in the first half of FY19.
• Long-term Benefits: Expected to drive traffic and ad sales, especially for Youku, with the opening match drawing over $12mn+ viewers.
• Cross-selling Opportunities: Ele.me's 24-hour delivery service caters to WC fans, although its revenue contribution is adjusted due to consolidation.

Core E-commerce Growth

• FY1H19 Drag: High base effect from FY1Q18 (+65% YoY) and FY2Q18 (+58% YoY) may underperform in June and September qtrs.
• Commission Rev Growth: Expected to grow at a faster pace due to reduced discounts during the 618 period.
• Long-term Outlook: Confident in core commerce growth driven by algorithm improvements and new retail initiatives.

Financial Performance

Balance Sheet

• Total Assets: Rose from RMB364,450 million in FY16 to RMB1,043,346 million in FY20E.
• Total Liabilities: Increased from RMB114,561 million in FY16 to RMB387,152 million in FY20E.
• Total Shareholders’ Equity: Grew from RMB216,987 million in FY16 to RMB656,195 million in FY20E.

Cashflow Statement

• Net Cash Flow: Improved from negative RMB1,375 million in FY16 to positive RMB92,857 million in FY20E.
• CF from IA: Negative in FY16 but showed improvement in subsequent years.
• CF from FA: Positive in FY17 but became negative in FY20E.

Profit & Loss Statement

• Revenues: Show consistent growth across all segments.
• Non-GAAP Net Income: Projected to increase to RMB104,042 million in FY19E.
• Adj EBITDA: Expected to decline in FY1H19 due to content costs, but show recovery in H2.

Investment Ratings

Industry Rating

• OVERWEIGHT: Expect the sector to outperform the market over the next 12 months.

Company Rating

• BUY: Expect the stock to generate 10%+ return over the next 12 months.

Shareholding Structure

• SoftBank Group Corp.: 29.1%
• Altaba Inc.: 14.9%
• Ma, Yun: 12.0%
• No. of Shares Outstanding: 2,561 million

Analyst and Regulatory Information

• Analyst Disclosure: The analysts certify that the views expressed in the report reflect their personal views.
• Regulatory Disclosure: The report is subject to certain legal restrictions and may not be available to all investors.
• Disclaimer: CMS HK is not a licensed broker-dealer in the US and its services are not available to US persons unless permitted by SEC Rule 15a-6.

Conclusion

Despite short-term challenges such as high content costs and RMB depreciation, Alibaba is expected to show strong recovery in the second half of FY19. The company's long-term growth potential is supported by its algorithm improvements, new retail initiatives, and cross-selling opportunities within its ecosystem. The report reiterates a BUY recommendation with a target price of US$262, highlighting the company's solid fundamentals and strategic positioning.