20220805-招银国际-China_ecommerce_to_bottom_out_6页_863kb

Alibaba (BABA US) Company Update Summary

Core Content

This document presents a detailed update on Alibaba Group (BABA US) from CMB International Global Markets (CMBIGM), focusing on its financial performance and outlook for the fiscal year 2023 (FY23) and beyond. The analysis highlights key financial metrics, earnings forecasts, and valuation insights, alongside market conditions and strategic performance across various segments.

Main Points

Financial Performance

• 1QFY23 Revenue: $+0%$ YoY, slightly above consensus and CMBI estimate.
• Non-GAAP Net Profit: $-30%$ YoY, above consensus and CMBI estimate.
• Adj. EBITA Margin: 16.7%, which is $-3%$ YoY and $+9%$ QoQ, better than the CMBI estimate of 13%.
• China E-commerce Revenue: $-1%$ YoY, with CMR at $-10%$ YoY (ads resilient, commission impacted by epidemic).
• GMV Trends: Declined mid-single-digit YoY in June, but improved from June to July, suggesting recovery.
• China E-commerce EBITA Margin: 31%, above CMBI's estimate of 28%.

Business Segments

• China Commerce: Revenue declined $-1%$ YoY, but GMV improved in July.
• International Commerce: Revenue increased $+2%$ YoY.
• Local Services: Revenue increased $+5%$ YoY, in line with CMBI's estimate.
• Cainiao: Revenue increased $+5%$ YoY.
• Cloud: Revenue increased $+10%$ YoY, with challenges expected in 2H22E due to shrinking demand.
• Digital Media and Entertainment (DME): Revenue declined $-10%$ YoY.
• Innovation Initiatives: Revenue increased $+25%$ YoY.

Earnings Forecast

• CMBIGM slightly revised up the earnings forecast for FY22-24E by $0 - 1%$, reflecting better cost control.
• Target Price (TP): US$151.0 (21x FY23E P/E), suggesting an upside of $+54.4%$ from the current price of US$97.8.
• Valuation: Attractive given the expected GMV recovery, improved margins, and already-low financial expectations.

Margin Outlook

• Adj. Net Margin: Improved from 14.6% in FY22A to 14.8% in FY23E.
• Operating Margin: Improved from 9.1% in FY22A to 9.3% in FY23E.
• Gross Margin: Improved from 31.2% in FY22A to 31.5% in FY23E.
• Narrowing Loss: Continued narrowing of losses from TCC and local services, with better UE expected.

Key Information

Revenue Trends

• FY21A Revenue: RMB 717,289 million
• FY22A Revenue: RMB 853,062 million
• FY23E Revenue: RMB 900,317 million
• FY24E Revenue: RMB 997,507 million
• FY25E Revenue: RMB 1,117,356 million

Earnings Trends

• Adj. Net Profit FY21A: RMB 178,954 million
• Adj. Net Profit FY22A: RMB 133,519 million
• Adj. Net Profit FY23E: RMB 152,283 million
• Adj. Net Profit FY24E: RMB 179,741 million

Valuation Metrics

• P/E Ratio: 10.1 (FY21A), 11.7 (FY22A), 13.7 (FY23E), 12.1 (FY24E), 10.4 (FY25E)
• P/B Ratio: 2.4 (FY21A), 2.0 (FY22A), 1.9 (FY23E), 1.7 (FY24E), 1.6 (FY25E)

Share Performance

• 1-month Return: -22.1%
• 3-month Return: -7.0%
• 6-month Return: -29.0%

Market Cap

• Current Market Cap: US$239,233 million

Shareholding Structure

• Goldman Sachs: 0.9%
• Primecap Management: 0.7%
• Govt Pension Inv Fund Jap: 0.6%

Analyst Ratings

• BUY: Alibaba is recommended to be bought on dips, with an attractive valuation and recovery in sight.
• Target Price: US$151.0, indicating a potential upside of $+54.4%$ from the current price.

Strategic Outlook

• Cloud: Expected to decelerate in 2H22E, but better cost control is anticipated.
• Local Services: Continued improvement in UE and margin outlook.
• GMV Recovery: Expected to gradually improve, with better-than-feared CMR trends.

Conclusion

Alibaba Group is viewed as a positive investment opportunity, with a BUY rating. The company's financial performance, while affected by the epidemic, is showing signs of recovery, particularly in China e-commerce and local services. The updated earnings forecast and attractive valuation support the recommendation to consider buying on dips, as the company is expected to benefit from improved GMV and margin trends in the coming quarters.