Alibaba (9988 HK) Company Update Summary
Core Content
CMB International Securities has released an updated equity research report on Alibaba, highlighting its strong performance in the third quarter of fiscal year 2021 (3QFY21). Despite regulatory challenges and uncertainties, the company delivered revenue and non-GAAP net profit growth of 37% and 27% year-over-year (YoY), respectively, which were 3% and 7% above the consensus. The adjusted EBITA margin for the cloud segment was positive, and Cainiao achieved positive operating cash flow for the first time. However, the firm has adjusted its earnings forecasts due to increased reinvestment and competition concerns, lowering them by 1%/5%/4% for FY21/22/23E, and setting a new SOTP-based target price of HK$330.6 (from HK$349.4).
Main Points
- Strong Q3 Performance: Alibaba's revenue and non-GAAP net profit grew 37% and 27% YoY, surpassing the consensus by 3% and 7% respectively.
- Margin Improvements: Adjusted EBITA margin reached 28%, driven by better margins in Cainiao, cloud computing, and innovation initiatives.
- Regulatory Uncertainties: Ongoing regulatory challenges, including the Ant Group rectification plan and the Anti-monopoly Investigation, remain a concern for the market.
- Reinvestment Strategy: The company is prioritizing TAM expansion and topline growth over short-term profitability, reinvesting in initiatives such as groceries, low-tier markets, and cloud computing.
- Target Price Adjustment: The target price was revised to HK$330.6, reflecting a 27.2% decrease from the previous target of HK$349.4.
- Maintain BUY Rating: The report recommends maintaining the BUY rating, citing long-term momentum and strong cloud and emerging business growth.
Key Financial Highlights
| Metric |
FY19A |
FY20A |
FY21E |
FY22E |
FY23E |
| Revenue (RMB mn) |
376,844 |
509,711 |
702,685 |
919,093 |
1,100,336 |
| YoY Growth (%) |
50.6 |
35.3 |
37.9 |
30.8 |
19.7 |
| Adj. Net Profit (RMB mn) |
93,407 |
132,479 |
172,802 |
220,672 |
267,000 |
| Adj. EPS (RMB) |
38.0 |
53.9 |
63.5 |
80.3 |
96.2 |
| P/E (x) |
43.7 |
30.8 |
26.1 |
20.7 |
17.3 |
| P/B (x) |
7.1 |
5.0 |
4.4 |
3.8 |
3.2 |
| ROE (%) |
16.2 |
16.3 |
17.1 |
17.1 |
17.4 |
Revenue Breakdown (RMB mn)
| Segment |
1QFY20 |
2QFY20 |
3QFY20 |
4QFY20 |
1QFY21 |
2QFY21 |
3QFY21 |
| Core Commerce |
99,544 |
101,220 |
102,843 |
93,865 |
133,318 |
130,922 |
195,541 |
| Cloud Computing |
7,787 |
9,291 |
10,721 |
12,217 |
12,345 |
14,899 |
16,115 |
| Digital Media & Entertainment |
6,312 |
7,296 |
7,396 |
5,944 |
6,994 |
8,066 |
8,079 |
| Innovation Initiatives |
1,281 |
1,210 |
1,864 |
2,288 |
1,094 |
1,172 |
1,349 |
Earnings Revisions
| Metric |
New (FY21E) |
Old (FY21E) |
Diff (%) |
| Revenue |
702,685 |
707,470 |
-0.7% |
| Gross Profit |
307,073 |
309,164 |
-0.7% |
| Operating Profit |
110,457 |
111,337 |
-0.8% |
| Adj. Net Profit |
172,802 |
173,794 |
-0.6% |
| Adj. EPS (RMB) |
63.5 |
63.86 |
-0.6% |
| Adj. Net Margin |
24.9 |
25.6 |
-0.6% |
Strategic Initiatives
- Core Commerce Growth: Continued growth in core commerce, with improved monetization through feeds, enriched ad formats, and livestreaming.
- Taobao Live: Achieved over RMB400bn GMV by December 2020.
- Market Expansion: Expected further growth from lower-tier cities penetration, livestreaming to increase engagement, and expanding TAM through groceries (e.g., Taobao Maicai).
- Cloud and Emerging Businesses: Cloud achieved breakeven earlier than expected, and the company remains committed to its cloud and emerging business initiatives.
Shareholding and Performance
| Shareholder |
% Ownership |
| SoftBank |
24.9% |
| Ma Jack Yun |
3.5% |
| APN Ltd |
1.9% |
| Performance Period |
Absolute (%) |
Relative (%) |
| 1-month |
8.0 |
1.8 |
| 3-months |
-14.3 |
-28.5 |
| 6-months |
2.1 |
-13.1 |
Key Ratios
| Ratio |
FY19A |
FY20A |
FY21E |
FY22E |
FY23E |
| Gross Margin (%) |
45.1 |
44.6 |
43.7 |
42.8 |
42.8 |
| PreTax Margin (%) |
25.5 |
32.7 |
27.5 |
26.1 |
26.7 |
| Adj. Net Margin (%) |
26.4 |
28.2 |
24.9 |
22.4 |
22.6 |
| ROE (%) |
16.2 |
16.3 |
17.1 |
17.1 |
17.4 |
| ROA (%) |
9.7 |
10.1 |
12.4 |
13.1 |
13.1 |
CMBIS Ratings
- BUY: Stock with potential return of over 15% over the next 12 months.
- HOLD: Stock with potential return of +15% to -10% over the next 12 months.
- SELL: Stock with potential loss of over 10% over the next 12 months.
- NOT RATED: Stock not rated by CMBIS.
- OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
- MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
- UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.
Disclosures
- The report is prepared by CMBIS for its clients and does not constitute an offer or solicitation to buy or sell any security.
- The analyst certifies that the views expressed reflect personal opinions and not influenced by compensation.
- CMBIS may have investment banking relationships with the companies covered.
- The report may be subject to change and is not guaranteed to be accurate or complete.
- It is intended solely for the use of the intended recipients and cannot be reproduced or distributed without prior written consent.
Conclusion
Alibaba delivered strong Q3FY21 results, with revenue and net profit growth exceeding expectations. Despite regulatory challenges and margin dilution due to increased reinvestment, the firm maintains a BUY rating, emphasizing its long-term growth potential, particularly in core commerce and cloud computing. The revised target price reflects the updated earnings forecasts and market conditions. Investors are advised to consult with a professional financial advisor for personalized investment decisions.
