20240110-招银国际-Business_transition_ongoing_6页_1mb

Alibaba BABA US, according to this report, is in an ongoing business transition. The analysis expects in-line results for the fiscal year 2024 third quarter (March year-end) due to factors like softer revenue in China commerce retail and the 'All Others' segment. Key growth areas include the Alibaba International Digital Commerce Group (AIDC), which is poised for accelerated investment in international business expansion, projected to grow by 51% year-over-year in its revenue for the quarter. However, this may weigh on short-term adjusted EBITA margins, forecasted to decline to 19.7% in 3QFY24 from 21.0% in the prior year.

The report lowers the target price to US$137.0 per ADS, a 88.0% upside from the current price, reflecting slower-than-expected revenue and earnings growth amid persistent macro headwinds. While operating efficiency improvements are limited post a cost-control-heavy year, Alibaba remains focused on enhancing shareholder returns through dividends and share buybacks. Long-term value could be enhanced by integrated strategies, including international expansion and cloud business development.

Financial forecasts indicate revenue growth of 8.8% in FY24, supported by digital commerce; however, adjusted net profit margin is expected to face pressure. The Sum of the Parts (SOTP) valuation methodology assigns target prices to specific segments, such as US$59.3 per ADS for Taobao and Tmall Group and US$16.4 for AIDC. The overall BUY recommendation is based on positive long-term potential.

Challenges include fierce competition, limited operating margin room, and a slow recovery in cloud business revenue. The valuation incorporates risks, but upholds confidence in Alibaba's strategic moves for ROIC and shareholder returns.