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Alibaba (BABA US) Summary

Core Content and Key Highlights

Alibaba Group (BABA US) released its 3QFY23 results, showcasing a total revenue of RMB247.8bn, up 2% YoY, surpassing both the forecast and Bloomberg consensus. The performance was driven by improved direct sales and international commerce revenue. Non-GAAP net income rose 12% YoY to RMB49.9bn, outperforming estimates and showing a 13/12% beat.

The company is focusing on three key areas for the China retail business in 2023: enhancing user stickiness and time spent, improving value for money proposition, and expanding neighborhood digital retail. Management is optimistic about the recovery of the business in 2023 and continues to invest in driving growth with an operating efficiency mindset.

The target price for Alibaba was revised to US$155.50 per ADS, reflecting a 18.1x FY24E P/E ratio. This is based on a SOTP valuation model that includes different segments of the business.

Main Financials and Segment Performance

3QFY23 Revenue Breakdown (RMBmn)

• China Commerce: 169,986
• International Commerce: 19,465
• Local Consumer Services: 13,164
• Cainiao: 16,553
• Cloud: 20,179
• Digital Media and Entertainment: 7,586
• Innovation Initiatives and Others: 823
• Consolidated: 247,756

Adjusted EBITA (RMBmn)

• China Commerce: 58,627
• International Commerce: -763
• Local Consumer Services: -3,137
• Cainiao: -12
• Cloud: 356
• Digital Media and Entertainment: -25
• Innovation Initiatives and Others: -1,235
• Unallocated: -1,763
• Consolidated: 52,048

Adjusted EBITA Margin

• Consolidated: 21.0%
• Cloud: 1.8%
• International Commerce: -3.9%
• Cainiao: -0.1%

Investment Strategy and Growth Outlook

• Cloud Computing: The cloud segment saw a 3% YoY revenue growth to RMB20.2bn, with non-internet industries contributing 9% YoY growth and 53% of overall cloud revenue. The segment is focusing on stability and security, and enhancing technological capabilities to drive long-term growth.

• International Commerce: Revenue increased 18% YoY to RMB19.5bn, with retail and wholesale contributing RMB14.6bn and RMB4.8bn respectively. This growth was largely attributed to Trendyol's performance.

• Cainiao Logistics: Revenue grew 27% YoY to RMB16.553bn, with a loss margin of -0.1%. The growth was driven by improved domestic consumer logistics and international fulfillment services.

Valuation and Forecast Revisions

Revenue Forecast (RMBbn)

• FY23E: 877.3
• FY24E: 980.2
• FY25E: 1072.4

Non-GAAP Net Profit Forecast (RMBbn)

• FY23E: 141.0
• FY24E: 162.7
• FY25E: 177.7

Gross Margin

• FY23E: 36.0%
• FY24E: 36.2%
• FY25E: 36.3%

Non-GAAP Net Margin

• FY23E: 16.1%
• FY24E: 16.6%
• FY25E: 16.6%

SOTP Valuation Breakdown

Analyst Ratings and Performance

• CMBIGM Rating: BUY (Maintain)
• Target Price: US$155.50 per ADS
• Current Price: US$94.78
• Up/Downside: 64.1%

Share Performance and Market Data

• Market Cap (US$mn): 258,379.6
• Avg 3 mths t/o (US$mn): 99.8
• 52w High/Low (US$): 122.39/63.15
• Total Issued Shares (mn): 2726.1

Shareholding Structure

• SoftBank: 23.9%

Financial Summary (Key Metrics)

• Revenue Growth (YoY%):

  • FY23E: 2.8%
  • FY24E: 11.7%
  • FY25E: 9.4%

• Non-GAAP Net Profit Margin:

  • FY23E: 16.1%
  • FY24E: 16.6%
  • FY25E: 16.6%

• ROE (%):

  • FY23E: 6.1%
  • FY24E: 9.9%
  • FY25E: 9.6%

• P/E (x):

  • FY23E: 27.9
  • FY24E: 14.9
  • FY25E: 13.5

Analyst Disclosures

The research analyst certifies that all views expressed in the report accurately reflect personal views and that no compensation is directly or indirectly related to the report's content. The analyst also confirms no trading or financial interests in the covered companies within the specified periods.