CICC: Maintains Alibaba-W outperform rating with a target price of HKD 147
CICC maintains a rating of outperform for Alibaba-W, with a target price of HKD 147. It is expected that as investments increase, supply constraints will ease, and Alibaba is likely to achieve rapid growth in its AI business, driving an upward trend in cloud computing revenue. FY26 revenue is revised down by 3% to CNY 106.83 billion, and non-GAAP net profit attributable to shareholders is revised down by 29% to CNY 12.18 billion. FY27 revenue and profit forecasts are CNY 121.51 billion and CNY 14.93 billion, respectively. In 1QFY26, cloud revenue grew by 25.8% year-on-year, with AI-related revenue accounting for over 20% of external customer revenue for the first time
According to the Zhitong Finance APP, China International Capital Corporation (CICC) released a research report stating that currently, Alibaba-W (09988, BABA.US) is trading at 16/18 times FY26 and 13/15 times FY27 non-GAAP price-to-earnings ratios in the Hong Kong and US stock markets. The FY26 revenue forecast has been lowered by 3% to CNY 106.83 billion, impacted by the exclusion of GaoXin Retail and Intime, and the FY26 non-GAAP net profit attributable to shareholders has been reduced by 29% to CNY 121.8 billion, mainly due to increased investment in Taobao Flash Purchase. The firm has introduced FY27 revenue and profit forecasts of CNY 121.51 billion and CNY 14.93 billion, switching Alibaba's valuation to a segmented valuation and adjusting it to FY27, based on a 13x P/E for the e-commerce business and a 3.5x P/S for the cloud computing business. This is mainly due to the independent profitability of both e-commerce and cloud businesses and adjustments in valuation centers, corresponding to target prices of USD 151 and HKD 147 for the US and Hong Kong stocks, respectively, which is a 35% increase from the previous target price. The rating is maintained at outperforming the industry, with an upside potential of 27% and 12% compared to the current prices in the Hong Kong and US stock markets.
CICC's main points are as follows:
1QFY26 revenue and adjusted EBITA below market expectations
The company announced its 1QFY26 (2Q25) results: revenue increased by 1.8% year-on-year to CNY 247.7 billion, with a comparable growth of 10% after excluding the impacts of GaoXin Retail and Intime; adjusted EBITA fell by 13.7% year-on-year to CNY 38.8 billion, mainly due to increased investment in Taobao Flash Purchase, partially offset by reduced losses in international business.
Cloud computing capital expenditure up, revenue growth accelerates
1QFY26 cloud revenue increased by 25.8% year-on-year, with external customer revenue up by 26%, mainly driven by public cloud and AI, with AI-related revenue accounting for over 20% of external customer revenue for the first time. AI also drove rapid growth in traditional computing and storage products. In 1QFY26, cloud business EBITA was CNY 2.95 billion, corresponding to a profit margin of 8.8%, mainly due to economies of scale and efficiency improvements in public cloud, partially offset by new investments. Capital expenditure for this quarter rose to CNY 38.6 billion, with limited impact from supply chain disruptions. The company maintains a guidance of CNY 380 billion in investments over three years. The firm expects that as investments increase, supply constraints will ease. Alibaba possesses leading open-source large model capabilities and a comprehensive AI ecosystem, which is expected to drive rapid growth in AI business, thereby achieving an increase in year-on-year growth rate of cloud computing revenue and an enhancement in cloud valuation.
Taobao Flash Purchase sees both order volume and traffic rise, with July expected to be the peak loss month
In August 2025, the number of monthly active buyers in instant retail reached 300 million, with Taobao's monthly active buyers increasing by 25%, and daily orders reaching 80 million, achieving user scale and user awareness goals. From an operational efficiency perspective, short-term losses in Flash Purchase are significant. The firm expects July to be the peak month for losses, followed by monthly improvements through capacity optimization, efficiency enhancements, and optimization of user and order structures. After September, losses in Flash Purchase are expected to narrow by half compared to July. The firm estimates that the EBITA losses for Taobao Flash Purchase in 1QFY26 and 2QFY26 will be CNY 11.2 billion and CNY 31.6 billion, corresponding to average losses of CNY 3.3 and CNY 4.7 per order, with a total annual EBITA loss for Taobao Flash Purchase of CNY 74.3 billion, corresponding to an average loss of CNY 3.1 per order E-commerce continues to focus on core users and merchants, observing the trend of flash purchase synergy
In Q1 FY26, customer management revenue (CMR) increased by 10% year-on-year. The bank estimates that Taotian's GMV increased by 5% year-on-year, mainly driven by the increase in software technology service fees and the penetration rate of site-wide advertising. Even with high base factors, the bank predicts that CMR is expected to maintain high single-digit to double-digit year-on-year growth in the coming quarters, mainly due to the effective drive of flash purchase business on traffic, which in turn boosts advertising revenue. It is expected that in the next three quarters, the positive contribution of flash purchases to the year-on-year growth rate of CMR will be 2 percentage points, but the driving force on GMV still needs to be observed.
Risk Warning: Uncertainty in the macro economy and regulation, risk of intensified competition
