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Alibaba (BABA US) Company Update Summary

Core Content

This report provides an equity research update on Alibaba Group (BABA US), focusing on its financial performance, strategic initiatives, and valuation. It includes earnings revisions, financial summaries, and market analysis, highlighting the company's position in the Chinese internet sector.

Key Financial Highlights

• 1QFY22 Performance: Revenue and adjusted net profit grew by 34% YoY and 10% YoY, respectively, but slightly below consensus. Core commerce, cloud computing, and digital media and entertainment (DME) revenue increased by 35%, 29%, and 15% YoY.
• Earnings Forecast: Earnings forecasts for FY22-24E were trimmed by 3-6% due to a higher estimated tax rate. The new target price is US$284.7, reflecting a 30x/25x P/E for FY22 and FY23.
• Current Valuation: The current forward P/E is 17x, suggesting a 10% downside compared to the historical forward P/E trough of 19x in 2016.

Strategic Initiatives

• Multi-app Strategy: Alibaba is emphasizing its multi-app strategy, aiming to expand beyond the super app model. It is increasing investment in user acquisition, merchant support, supply chain, and high-tech initiatives.
• CMR Revenue: The CMR (Consumer-to-Consumer) revenue was priced in, with a 14% YoY increase. The management reiterated its ambition to boost Taobao Deals with deeper user penetration and value-for-money products.
• GGB GMV: The GMV of the Group Buying business (GGB) surged by 200% QoQ, indicating strong growth in this segment.
• Regulatory Commitment: Alibaba stated its commitment to data security regulations and potential collaboration with Tencent's ecosystem.

Market and Sector Context

• Sector De-rating: The Chinese internet sector has seen de-rating and weak market sentiment, which may lead to short-term stock price pressure.
• Defensive Position: Despite limited catalysts, Alibaba is viewed as relatively defensive compared to its peers, with limited downside risk from valuation and regulation.

Investment Recommendation

• Rating: BUY
• Target Price: US$284.7 (a 45.6% upside from the current price of US$195.5)
• Reasoning: The company's strong fundamentals, multi-app strategy, and resilience to regulatory and market challenges support the BUY rating.

Financial Summary

Revenue Breakdown

Earnings Revision

Key Ratios

Share Performance

Shareholding Structure

Analyst Certification

• The research analyst certifies that the views expressed reflect his or her personal views.
• No compensation is directly or indirectly related to the specific views in this report.
• The analyst has not traded in the stocks covered in the report within 30 days prior to its issuance and will not do so within 3 business days after.

Important Disclosures

• CMBIS has investment banking relationships with the issuers covered in this report.
• This report is not an offer or solicitation to buy or sell any securities.
• CMBIS is not a registered broker-dealer in the United States and is not subject to U.S. research regulations.
• The report is intended solely for "major US institutional investors" and may not be distributed to others without prior written consent.

Conclusion

Alibaba Group continues to show resilience and growth potential despite challenges from the pandemic and regulatory environment. The company's multi-app strategy and investment in key areas are expected to drive future performance. While the stock may face short-term pressure, its defensive positioning and strong fundamentals support a BUY rating.