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Alibaba (BABA US) Company Update Summary

Core Content Overview

This document provides a comprehensive update on Alibaba Group (BABA US), focusing on its financial performance, business segments, and future outlook, particularly in the context of the ongoing impact of the epidemic and macroeconomic challenges.

Key Financial Forecasts

• 4QFY22E Revenue: $+6%$ YoY (2% below consensus), with China Commerce and Cloud revenue at $+2%$ and $+19%$ YoY respectively.
• 4QFY22E Net Profit: $-39%$ YoY, with a significant drop in China Commerce and Cloud margins.
• Adj. EBITA Margin: Estimated at 7% (-5ppts YoY), with narrowing losses from Taobao Deals and Taocaicai.
• Earnings Forecast Trim: FY22-24E earnings forecasts trimmed by 6-14%, and target price (TP) reduced to US$153.2 (from US$181.6).
• TP Based on P/E: 20x/19x for FY22E/FY23E, indicating a lower valuation compared to previous estimates.

Challenges and Headwinds

• Epidemic Impact: Expected to persist through 1H22E, affecting CMR and cloud momentum.
• CMR Performance: 4QFY22E CMR forecasted at $-2.3%$ YoY, below GMV trend of $+2%$ YoY.
• Cloud Growth: Cloud revenue growth is expected to decelerate to $+19%$ YoY, due to:
  1. Soft macroeconomic conditions and enterprise budget constraints.
  2. Project delays caused by the epidemic.
  3. Reduced contribution from certain verticals like education.
• International Business: AliExpress faces pressure from the epidemic and geopolitical tensions (Russia-Ukraine), while Trendyol is affected by Lira volatility.

Revenue Breakdown

• Total Revenue: Forecasted to grow at 6% YoY for 4QFY22E.
• China Commerce: Expected to grow at 2% YoY, dragged by macro and epidemic challenges.
• International Commerce: Projected to grow at 7% YoY.
• Local Consumer Services: Expected to grow at 21% YoY.
• Cainiao: Growth at 15% YoY.
• Cloud: Expected to grow at 19% YoY, with cloud margins in low single digits.

Earnings and Valuation

• Adj. Net Profit: Forecasted at RMB 133,668 million for FY22E, down from RMB 142,063 million.
• Adj. EPS: RMB 48.6 for FY22E, down from RMB 51.68.
• SOTP Valuation: Equity Value at US$421 billion, with TP at US$153.2 (RMB 1,120.3).
• Valuation Multiples:
  • Core Commerce: EV/EBITDA at 12.0x (FY22E).
  • Cloud: P/S at 5.0x (FY22E).
  • Digital Entertainment: P/S at 2.0x (FY22E).
  • Innovations: P/S at 3.0x (FY22E).

Analyst Ratings

• BUY: Maintained, but with caution due to ongoing challenges.
• Target Price (TP): US$153.2 (RMB 1,120.3), with a price range expected over the coming quarters.
• Recommendation: Suggest waiting for clearer signals of macroeconomic recovery and lockdown relaxation before investing.

Shareholding and Market Performance

• Market Cap: US$291.9 billion.
• Share Performance:
  • 1-month: +7%
  • 3-months: -15.0%
  • 6-months: -25.3%
• Shareholding Structure:
  • Goldman Sachs: 1.5%
  • Primecap Management: 0.6%
  • Govt Pension Inv Fund Jap: 0.6%

Financial Summary

• Revenue Trends: Expected to grow at 18.1% YoY for FY22E, 11.5% for FY23E, and 14.5% for FY24E.
• Adj. Net Profit Trends: Expected to be RMB 133,668 million for FY22E, RMB 141,158 million for FY23E, and RMB 170,084 million for FY24E.
• Adj. EPS Trends: RMB 48.6 for FY22E, RMB 50.8 for FY23E, and RMB 60.7 for FY24E.
• Key Ratios:
  • Gross margin: 36.0% (FY22E).
  • Adj. net margin: 15.8% (FY22E).
  • ROE: 11.8% (FY22E), with a slight improvement expected to 12.2% in FY24E.
  • Current ratio: 1.5 (FY22E), indicating a moderate liquidity position.

Conclusion

Despite the challenges posed by the epidemic and macroeconomic conditions, Alibaba Group is expected to show some recovery in margins and revenue in the coming quarters. However, the outlook remains cautious, with the company's earnings and growth forecasts adjusted downward. The analyst maintains a BUY rating but suggests waiting for clearer signals of recovery before making investment decisions.