CICC: Maintains Alibaba-W "Outperform Industry" Rating with a Target Price of HKD 197

According to the Zhitong Finance APP, China International Capital Corporation (CICC) released a research report stating that Alibaba (09988, BABA.US) is currently trading at 30 and 21 times the FY26 and FY27 non-GAAP price-to-earnings ratios in both the Hong Kong and US stock markets. The firm has lowered its FY26 revenue forecast by 1% to RMB 106.15 billion, while maintaining its FY27 revenue forecast largely unchanged, mainly due to lower-than-expected AIDC and flash purchase revenues; the firm has reduced its FY26 and FY27 non-GAAP net profit attributable to shareholders by 17% and 4% to RMB 101.2 billion and RMB 143.8 billion, mainly due to expanded losses in flash purchases and other businesses. The firm employs a sum-of-the-parts (SOTP) valuation, assigning a 15x P/E to the e-commerce business and a 7x P/S to the cloud computing business for FY27, maintaining target prices of USD 204 for US stocks and HKD 197 for Hong Kong stocks, with an outperform rating, indicating an upside potential of 11% and 13% from current stock prices in the Hong Kong and US markets, respectively.

CICC's main points are as follows:

Forecast for 2QFY26 non-GAAP net profit attributable to shareholders is below consensus expectations

The firm expects Alibaba's 2QFY26 (3Q25) revenue to grow by 3.8% year-on-year to RMB 245.5 billion, with adjusted EBITA declining by 83% year-on-year to RMB 7.1 billion, with profits falling below consensus expectations mainly due to increased investment in flash purchases and expanded losses in other businesses.

Cloud computing revenue accelerates year-on-year growth, AI prosperity continues

The firm expects 2QFY26 cloud computing revenue to grow by 30% year-on-year, further accelerating from 26% in the previous quarter; the firm expects a cloud computing EBITA margin of 9.0% for 2QFY26. During the Cloud Habitat Conference, Alibaba intensively released a series of models, AI applications, and hardware devices, and the firm believes that Alibaba Cloud's advantages on the supply side are expected to drive continuous growth in cloud computing revenue and profits, as well as boost valuations.

Flash purchase losses expand, synergy drives e-commerce revenue growth

The firm expects 2QFY26 flash purchase (delivery and instant retail) EBITA losses to reach RMB 36.5 billion, which is higher than the firm's expectations. The firm observed that the user engagement (UE) in September narrowed somewhat compared to July and August, and under Alibaba's priority on market share and efficiency optimization in the flash purchase strategy, the firm expects future monthly UE to narrow to around RMB 3, mainly from improvements in average order value, monetization rates, and fulfillment cost optimization. Additionally, the firm expects 2QFY26 customer management revenue to grow by 10% year-on-year, mainly due to improved monetization rates and a 2-3% contribution from flash purchases to the year-on-year growth rate of customer management revenue (CMR). The firm expects 2QFY26 GMV to grow by 5.7%, with positive year-on-year growth in e-commerce EBITA after excluding flash purchase losses.

AIDC continues to reduce losses, while other business losses expand

The firm expects AIDC's adjusted EBITA to remain basically flat this quarter, mainly due to Alibaba maintaining a profit-first goal under uncertain external conditions. The firm expects losses in other businesses to reach RMB 5 billion for 2QFY26, mainly due to increased computational power investments in model training and AI-native applications, as well as increased investments in local living sectors by Hema and Amap. The firm expects that losses in other businesses may remain high in the future.

Risk warning: Uncertainties in the macro economy and regulation, risks of intensified competition, and AI progress falling short of expectations