20221027-招银国际-Consolidate_strength,_growing_new_horizons_17页_2mb

Alibaba (BABA US) Summary

Core Content and Main Points

Alibaba Group is expected to recover earnings in 2023, driven by streamlining new businesses, operation optimization, and gradual recovery in China commerce marketplace GMV. The company's long-term growth in cloud computing and international expansion remains intact despite short-term challenges. The target price is set at US$154.5 per ADS, translating into a 20.1x FY23E non-GAAP PE, which is significantly higher than the current trading valuation of 8.2x FY23E non-GAAP PE, making the risk-reward attractive. The recommendation remains BUY.

Key Information

• Earnings Recovery:

  • Alibaba's earnings are stabilizing due to cost control, focus on quality growth, and macroeconomic recovery.
  • The inflection point for positive earnings growth is likely to occur in 2QFY23.
  • Adjusted EBITA is forecasted to grow by 10% to RMB143.5bn in FY23E, with adjusted EBITA margin improving to 16.0% (up from 15.3% in FY22).

• Revenue and Growth Forecast:

  • FY22-FY25E Revenue CAGR: 8.9%
  • FY22-FY25E Non-GAAP Net Profit CAGR: 6.0%
  • FY25E Revenue Forecast: RMB1.1tn
  • FY25E Non-GAAP Net Profit Forecast: RMB171.0bn

• Business Segment Forecast:

  • China Commerce (68.1% of FY23E revenue):
    • Forecasted CAGR of 6.5%.
    • GMV CAGR: 4.4%, CMR CAGR: 2.5%.
  • Cloud Computing (9.1% of FY23E revenue):
    • Forecasted CAGR of 14.8%.
    • FY23E revenue CAGR: 10.3%.
    • Adjusted EBITA margin: 2.0% (up from 1.5% in FY22).
  • International Commerce (7.4% of FY23E revenue):
    • Combined CAGR: 15.4%.
    • Retail CAGR: 15.8%, Wholesale CAGR: 14.7%.
    • International commerce revenue in FY22: RMB61.1bn.
  • Local Consumer Services (5.6% of FY23E revenue):
    • Forecasted CAGR of 15.7%, reaching RMB67.3bn in FY25E.
  • Cainiao Logistics (5.9% of FY23E revenue):
    • Forecasted CAGR of 15.8%, reaching RMB71.6bn in FY25E.

Valuation

• SOTP-based Target Price: US$154.5 per ADS

• Valuation Breakdown:

  • Core Commerce: US$101.6 per ADS (based on DCF with 11.7% WACC and 2% terminal growth).
  • Alibaba Cloud: US$26.0 per ADS (based on 6.0x PS multiple on FY23E revenue).
  • Cainiao Logistics: US$6.5 per ADS (based on last round financing valuation and 63% shareholding).
  • Local Consumer Services: US$5.3 per ADS (based on 2.0x PS on FY23E revenue).
  • Strategic Investments: US$15.0 per ADS (30% holding discount).

• Current Valuation:

  • Non-GAAP PE: 8.2x (FY23E).
  • Three-year TTM average: 23.3x.
  • P/B: 1.1x (FY23E).
  • ROE: 9.7% (FY23E).

Sensitivity Analysis

• Revenue Sensitivity to GTV and Take Rate:

  • Under bull-case assumptions (increased GTV growth and take rate), revenue could rise by 1.2–9.7% in FY24E.
  • Under bear-case assumptions (decreased GTV growth and take rate), revenue could fall by 1.1–8.7% in FY24E.

• Non-GAAP Net Income Sensitivity to S&M and G&A Expenses:

  • If S&M and G&A expenses growth is reduced, non-GAAP net income could increase by 0.8–6.1%.
  • If expenses grow, non-GAAP net income could decrease by 0.8–6.1%.

Market and Competitive Landscape

• China Commerce:

  • GMV growth is expected to normalize post-pandemic.
  • The company is focusing on improving customer experience and enhancing user engagement to fend off competition.

• International Expansion:

  • The international commerce segment, particularly in Southeast Asia (SEA), is seen as a key growth driver.
  • The SEA e-commerce GMV reached US$74bn in 2020, with a projected 26% CAGR to US$234bn in 2025E.
  • Indonesia is the largest e-commerce market in SEA, with a projected 24% CAGR to US$104bn in 2025E.

• Cloud Computing:

  • Despite near-term macroeconomic challenges, long-term growth remains positive.
  • The company's strong technology capabilities and market position in China's cloud industry support its future prospects.

Conclusion

Alibaba is positioned for earnings recovery in 2023, supported by its strategic focus on streamlining operations and enhancing core business performance. The company's international expansion, particularly in Southeast Asia, and cloud computing growth are key long-term drivers. With a target price of US$154.5 per ADS and current valuation at 8.2x FY23E non-GAAP PE, the risk-reward is considered attractive, and the recommendation to BUY remains unchanged.