20220225-招银国际-New_initiatives_net_loss_to_narrow_5页_909kb

Summary of Alibaba (BABA US) Company Update

Core Content

Alibaba Group (BABA US) reported mixed but acceptable results for the third quarter of fiscal year 2022 (3QFY22). The company experienced a topline growth of +10% YoY and a bottom line decline of -24% YoY, slightly below the consensus. This performance was attributed to soft consumption and the normalization of the new retail business. However, the company managed to beat expectations in terms of margins, primarily due to reduced R&D and G&A expenses.

Main Points

• 3QFY22 Performance:

  • Revenue increased by +10% YoY, with core commerce revenue up +9%, cloud revenue +20%, and DME revenue flat.
  • Adj. net profit was slightly lower than the consensus, but the margin improvement was notable.
  • Adjusted EBITA margins for core commerce, cloud, and DME were +23%, +1%, and -17%, respectively, which are in line with estimates.

• New Initiatives:

  • Taobao Deals paying orders grew by > +100% YoY, and Taocaicai GMV increased by +30% QoQ.
  • Management indicated that the net loss from new initiatives is expected to narrow in the coming quarters, signaling a positive shift in the margin trend.
  • Despite a slowdown in cloud growth to +20% YoY (from +33% in 2QFY22), the growth excluding the top internet player factor is estimated at +29% YoY, with non-internet segments contributing 52%.

• Valuation and Target Price:

  • The target price (TP) remains at US$181.6, based on a SOTP (Sum of the Parts) valuation.
  • The TP is currently +66.6% above the current price of US$109.0, suggesting a positive outlook.
  • The P/E ratio for FY22E and FY23E is 23x and 20x, respectively, indicating a reasonable valuation given the low market expectations.

• Investment Recommendation:

  • The report maintains the BUY rating, suggesting that Alibaba has potential for returns exceeding 15% over the next 12 months.
  • The company is expected to experience a gradual and moderate recovery in the coming quarters, with the potential for travel limitations to ease.

Key Financials

Revenue Breakdown

Earnings Revision

SOTP Valuation

Key Ratios

Investment Outlook

• The report suggests that investors should look beyond the challenging 4QFY22E and expect a gradual and moderate recovery in the coming quarters.
• The BUY rating is maintained, with a target price of US$181.6.
• The company is expected to see improvement in margins, particularly from new initiatives, which is viewed as a positive signal for future performance.

Analyst and Disclosures

• The report is prepared by CMB International Securities, with the research analyst certifying that the views expressed are based on personal analysis and not influenced by compensation or conflicts of interest.
• The report is intended for institutional investors and not for the general public.
• There are risks involved in trading securities, and the report does not provide individually tailored advice.
• The value of investments may fluctuate and is uncertain, depending on market conditions and underlying assets.

Conclusion

Alibaba's performance in 3QFY22 was mixed, with a slower-than-expected topline growth but margin improvement. The company is expected to see gradual recovery in the next quarters, with new initiatives showing strong performance and management guidance indicating a narrowing net loss. The BUY rating is maintained, and the target price remains at US$181.6, suggesting a positive outlook despite the current market challenges.