Alibaba Group (9988 HK / BABA US)
Recommendation : BUY
Fair Value : HKD 160.00 (9988 HK) / USD 164.50 (BABA US)
E-COMMERCE AND CLOUD EXECUTION ON TRACK
• Key drivers remain intact
• Sustainable Taobao Tmall Group (TTG) growth
• Cloud revenue to accelerate
Summary (9988 HK): Alibaba reported a mixed 4QFY25 results as revenue from Taobao Tmall Group (TTG) and Customer Management Revenue (CMR) came in ahead of expectations and rose 8% and 12% year-on-year (YoY) respectively.
Although Cloud revenue growth accelerated to 18% YoY in 4QFY25, it was still below investors’ elevated expectation of +20% YoY.
This, coupled with a sequential decline in cloud margin to 8% and CAPEX to CNY24.6b, have raised concerns about Alibaba’s artificial intelligence (AI) investments and its long-term growth potential, resulting in a 7.5% pullback in the American Depositary Shares (ADS) overnight.
Management remains committed in reinvesting in AI and reiterated the trend on AI adoption, which we believe should help ease investors’ concerns.
The investment thesis on Alibaba stays intact and the stock remains as one of our preferred plays in the internet and platform industry (alongside Tencent, 700 HK) given:
i) improving TTG momentum with domestic e-commerce market share stabilising; ii) riding on secular AI growth;
iii) benefitting from more consumer stimulus;
iv) Alibaba International Digital Commerce Group (AIDC) to achieve its first quarter of profitability in FY2026; and
v) ongoing focus on shareholder’s return.
Alibaba is China’s largest cloud hyperscaler with leading generative AI capabilities and a primary focus on external cloud.
We believe the company is well positioned to benefit from the broadening and an acceleration of AI adoption in China.
Our sum-of-the-parts (SOTP) fair value (FV) estimate is at HKD160.00 and implies 16x forward price-to-earnings (P/E).
The stock is currently trading at 11.6x forward P/E, which is close to -0.25 s.d. to historical average.
Source: OCBC