20230406-招银国际-A_recovery_year_ahead_with_more_to_expect_6页_1mb

Alibaba (BABA US) Summary

Core Content and Outlook

Alibaba Group is expected to have a recovery year ahead, with further growth anticipated. The core China marketplace GMV is on a stable recovery path, driven by discretionary consumption recovery, macroeconomic improvements, and Alibaba's strategy to enhance value propositions for both customers and merchants. The company has introduced a reorganization plan, which is expected to improve business agility and innovation, as well as shareholder returns.

The overall outlook is positive, but the company faces near-term revenue growth headwinds from the direct sales business due to a high base effect. The 4QFY23 revenue forecast is RMB208.3bn, slightly below the Bloomberg consensus. However, the total adjusted EBITA is expected to increase by 45% YoY to RMB22.9bn, attributed to effective cost control and improved operating efficiency.

Key Business Segments and Forecasts

• Customer Management Revenue (CMR): Expected to reach RMB61.2bn in 4QFY23, down 3.5% YoY, in line with the decline in China retail marketplace GMV. The gap between CMR and GMV growth is expected to narrow due to normalized return rates and improved merchant advertising sentiment.
• Cloud Business: Projected to grow 5% YoY in 4QFY23, with an adjusted EBITA margin of 2%. It remains a key strategic area for long-term development.
• Cainiao: Valued at US$6.5 per ADS, unchanged from the previous estimate, based on recent financing transactions and Alibaba's 63% shareholding.
• Local Consumer Services: Valued at US$5.2 per ADS, based on a 2.0x PS multiple on FY23 revenue.
• Strategic Investments: Valued at US$15.0 per ADS, with a 30% holding discount applied.

Valuation and Target Price

The SOTP-based target price is US$154.0 per ADS, translating into 18x FY24E PE (non-GAAP). The breakdown of the valuation is as follows:

1. Core Commerce Business: US$102.4 per ADS, based on DCF valuation (WACC of 11.7% and terminal growth of 2%).
2. Cloud Business: US$24.9 per ADS, based on a 6.0x PS multiple on FY23E revenue.
3. Cainiao: US$6.5 per ADS.
4. Local Consumer Services: US$5.2 per ADS, based on 2.0x PS on FY23 revenue.
5. Strategic Investment: US$15.0 per ADS, with a 30% discount on the holding.

Forecast Revisions and Valuation Comparisons

• Revenue Forecast: Revised downward by 0.8% for FY23E, 0.4% for FY24E, and 1.0% for FY25E compared to previous estimates.
• Gross Profit: Revised down by 2.3% for FY23E, 2.2% for FY24E, and 3.4% for FY25E.
• Non-GAAP Net Profit: Revised up by 1.9% for FY23E and down by 1.3% for FY24E and FY25E.
• Gross Margin: Expected to remain stable at 36.0% to 36.3%.
• Non-GAAP Net Margin: Projected to rise slightly from 16.1% to 16.6%.
• Valuation Comparisons: The company's valuation is compared to peers in the cloud computing and food delivery sectors, showing a competitive position.

Financial Summary

• Revenue: Expected to grow from RMB717,289 in FY21A to RMB1,058,011 in FY25E.
• Gross Profit: Projected to increase from RMB296,084 in FY21A to RMB384,058 in FY25E.
• Adjusted Net Profit: Expected to rise from RMB141,619 in FY23E to RMB175,259 in FY25E.
• Operating Profit: Projected to increase from RMB69,638 in FY22A to RMB133,838 in FY25E.
• Net Profit: Anticipated to grow from RMB64,127 in FY23E to RMB128,707 in FY25E.
• Adjusted Net Profit Margin: Expected to remain stable at 16.3% to 16.6%.
• ROE: Projected to increase from 6.2% in FY23E to 9.5% in FY25E.

Shareholding and Stock Performance

• Shareholding Structure: SoftBank holds 23.9% of the shares.
• Stock Performance: The stock has shown positive returns over the past 12 months, with a price performance of 22.3% absolute and 8.5% relative.
• Market Cap: RMB268,220.8 million.
• Share Price: Current price is US$98.39, with a target price of US$154.00, representing a 56.5% upside.

Analyst Recommendations

• Analyst Certification: The research analyst certifies that the views expressed accurately reflect personal opinions and confirms no conflicts of interest.
• CMBIGM Ratings: The stock is rated as "BUY", suggesting a potential return of over 15% over the next 12 months.
• Industry Outlook: The industry is expected to outperform the relevant market benchmark.

Disclosures

• Risk Disclaimer: There are risks involved in transacting in securities. The information provided is not tailored to individual investors and should not be construed as an offer or solicitation to buy or sell any security.
• Legal Disclaimer: The report is prepared for the use of intended recipients only and may not be reproduced or distributed without prior written consent.
• Jurisdictional Restrictions: The report is subject to distribution restrictions in the UK, US, and Singapore, as per relevant financial regulations.

Conclusion

Alibaba Group is expected to recover and grow in the coming year, supported by macroeconomic improvements and strategic initiatives. The company's SOTP-based valuation is US$154.0 per ADS, with a target price that reflects its current performance and future growth potential. The "BUY" rating indicates positive expectations for the stock, with a potential return of over 15% over the next 12 months. Investors are advised to consult with a professional financial advisor before making any investment decisions.