20180506-招商证券_香港_-Solid_FY4Q18_results__robust_FY19E_top-line_guidance__BUY_10页_1mb

Alibaba (BABA US) - Summary

Core Content

Alibaba Group (BABA US) reported strong FY4Q18 results, with sales and non-GAAP earnings exceeding expectations. The company guided FY19E revenue growth to over 60% YoY, significantly higher than the consensus of 39.8%, and reiterated its BUY rating with a revised target price of US$262.

Main Points

• FY4Q18 Performance:

  • Sales increased by 61% YoY, 5% above the consensus.
  • Non-GAAP earnings were 1% ahead of the consensus.
  • Gross and operating profits were 7% and 10% below, respectively, due to margin pressure from increased investment in New Retail initiatives and seasonality effects in China retail commerce.
  • Revenue growth was driven by core e-commerce (Intime, Hema, Tmall Import), cloud computing, and Cainiao Network.

• FY19E Guidance:

  • Revenue growth expected to be over 60% YoY, excluding the consolidation of Ele.me and Cainiao, the growth is expected to be over 50% YoY.
  • Continued investment in operating free cash flow to support long-term profit growth.
  • Margin pressure is expected to persist due to spending on offline retail and logistics.
  • Growth catalysts include algorithm improvements, new retail expansion, and leveraging big data and AI for long-term capabilities.

• Key Business Highlights:

  • Core E-commerce: Revenue up 62% YoY to RMB51bn; non-GAAP EBITA margin at 43%, down from previous quarters.
  • Cloud Computing: Revenue growth at 103% YoY, driven by paying users and complex service offerings. Adjusted EBITA margin dropped to -8%.
  • Digital Media and Entertainment: Revenue growth at 34% YoY to RMB5.3bn, with EBITA margin at -49% due to investment in original content.
  • Mobile and User Growth: Mobile MAU increased to 617mn, and annual active buyers reached 552mn.

Financials

Earnings Revision

• Non-GAAP Net Profit: Revised down by -3% in FY19E and -6% in FY20E.
• Revenue Forecast: Revised up by 18% in FY19E and 30% in FY20E to reflect stronger growth in core e-commerce, New Retail, and cloud.
• Adjusted EBITDA Margin: Revised down by 2.4pp in FY19E and 4.2pp in FY20E due to increased spending in key businesses.
• Non-GAAP Net Margin: Revised down to 26% in FY19E and 27% in FY20E.

Valuation

• Target Price: US$262, based on SOTP (Sum of the Parts) valuation.
• Valuation Multiples:
  • Core commerce: 20x FY19E EV/EBITDA.
  • Cloud: 6.5x EV/sales.
  • Digital media and entertainment: 3.5x EV/sales.
  • Innovation initiatives and others: 4.2x EV/sales.
  • Equity investees and net cash: 9% and 3% respectively.
• Valuation Breakdown:
  • Core commerce: 3,486 RMB bn (80% of total valuation).
  • Cloud: 157 RMB bn (4%).
  • Digital media and entertainment: 84 RMB bn (2%).
  • Innovation initiatives and others: 17 RMB bn (0.4%).
  • Equity investees: 1,000 RMB bn (9%).
  • Net cash: 100 RMB bn (3%).

Risks

• Cloud Computing: Potential deceleration in growth.
• Market Competition: Intensifying in China and ASEAN e-commerce markets.
• Monetization: Weaker-than-expected monetization from core commerce's user base.
• Investment Pressure: Aggressive spending on content and new initiatives could affect gross margin.

Related Research

1. China Internet: Pinduoduo: 2018/04/18
2. Alibaba (BABA US) - FY18E rev guide up: 2018/02/02
3. Alibaba (BABA US) - Another major foray into China's top hypermarket chain: 2017/11/20
4. China Internet: 2017 Single's Day: 2017/11/12
5. Alibaba (BABA US) - Another stellar quarter: 2017/11/03
6. Alibaba (BABA US) - New retail, innovation and tech: 2017/08/18
7. Alibaba (BABA US) - Sky is the limit for China's almighty: 2017/08/18

Key Figures

• Target Price: US$262 (+39% potential upside).
• Sector: Technology, Media & Telecom.
• Market Cap: US$484 bn.
• Shareholding Structure:
  • SoftBank Group Corp.: 29.1%
  • Altaba Inc.: 15.2%
  • Ma, Yun: 4.6%
• Shares Outstanding: 2,530 mn.

Conclusion

Alibaba Group delivered strong FY4Q18 results, with robust revenue and earnings growth. Despite margin pressures from New Retail initiatives and increased investment, the company is expected to maintain a significant growth trajectory in FY19E, with a target price of US$262. The BUY rating reflects confidence in its ability to achieve substantial revenue growth and long-term sustainable profit growth, although risks such as market competition and investment pressures remain.