Fangzheng Securities: Maintains a "buy" rating on Alibaba-SW (09988) with a target price of HKD 118.

Fangzheng Securities released a research report stating that they maintain a "recommended" rating for Alibaba-SW (09988), with forecasted revenue for the fiscal years 2025/2026/2027 of 1.0043/1.0998/1.1953 trillion yuan respectively, and adjusted net profit attributable to shareholders of 153.9/166.8/181.4 billion yuan. The target price is 118 Hong Kong dollars per share, and they maintain their overall assessment of the company. Alibaba achieved revenue of 236.5 billion yuan in the 24th quarter of Q3, a +5.2% yoy increase, slightly below the consensus expectation of 239.4 billion yuan. Adjusted EBITA was 40.6 billion yuan, slightly below the consensus expectation of 40.9 billion yuan, and NON-GAAP net profit attributable to shareholders was 36.4 billion yuan, in line with market expectations. Key points from Fangzheng Securities are as follows: The growth gap between Taotian CMR and GMV is narrowing, and TR is stabilizing. 1) Taotian Group achieved revenue of 99 billion yuan in the 24th quarter of Q3, with a yoy growth of +1.4%, in line with the consensus expectation of 99.1 billion yuan. From the perspective of GMV, the online GMV growth in Q3 was mainly driven by double-digit growth in order volume yoy, with order growth primarily driven by an increase in purchase frequency, partially offset by a decrease in average order amount. The bank expects GMV to achieve mid- to low-single-digit growth. The increase in the technology service fee rate and the steady increase in the overall promotion tool merchant penetration by Taotian have effectively narrowed the gap between GMV and CMR. CMR in this quarter was 70.4 billion yuan, +2.5% yoy, basically meeting the consensus expectation of 70.9 billion yuan. The take rate in this quarter has gradually stabilized and the bank estimates that the take rate has remained stable this quarter. 2) The bank emphasized in a previous report that the improvement in Taotian TR is not immediate and is influenced by positive and negative factors. While the increase in service fee rates and the increasing penetration rate of the overall promotion merchants play a positive role in driving TR, the expansion of the sales of innovative low-commercialization revenue businesses structural hinders the rise in TR. The bank believes that TR will go through a process of decline, stabilization, and recovery. After experiencing several consecutive quarters of decline, TR has now stabilized, and the bank is optimistic about the level of commercialization opening up gradually in subsequent quarters. 3) Taotian achieved adjusted EBITA of 44.6 billion yuan in this quarter, slightly below expectations, with a yoy decline of -3.0%, mainly due to the GMV share preference strategy under which investments in user experience and technology were made. Other profit performances of international digital businesses, cloud intelligence, and local life are good. 1) International digital business: Achieved international retail/wholesale revenue of 25.6/6.1 billion yuan in Q3 24, with a yoy growth of +35.0%/9.4%, in line with the consensus expectation of 25.5/5.8 billion yuan. Performance was strong, especially in the cross-border business, particularly AEChoice, and the growth rate under a high base decreasing in line with expectations. EBITA loss in this quarter was 2.9 billion yuan, better than the market expectation of 3.6 billion yuan, with the Choice UE continuing to improve month-on-month, and investments in the European and overseas markets by AliExpress and Trendyol. 2) Cloud intelligence: Achieved revenue of 29.6 billion yuan in Q3 24, with a yoy growth of +7.1%, meeting market expectations. Public cloud product revenue saw double-digit growth yoy, and AI products saw three-digit growth for the fifth consecutive quarter, with the bank maintaining its judgment that Cloud Intelligence Group will achieve double-digit revenue growth in FY25 H2. Moreover, Cloud Intelligence Group achieved adjusted EBITA of 2.7 billion yuan, exceeding market expectations of 2.2 billion yuan. Currently, Alibaba Cloud has a leading position in the field of AI, and there is expectation for AI to drive revenue and profit growth. 3) Local life: Achieved revenue of 17.7 billion yuan in Q3 24, with a yoy growth of +13.9%, below the market expectation of 19.3 billion yuan. There was a notable improvement in EBITA losses, with a loss of 400 million yuan in Q3 24, better than the market expectation of 900 million yuan, mainly due to improved operational efficiency and business scale expansion. 4) Cainiao: Achieved revenue of 24.6 billion yuan in Q3 24, with a yoy growth of +15.7%, lower than the expectation of 27 billion yuan, with adjusted EBITA of 0.6 billion yuan, below the expectation of 4.0 billion yuan. 5) Digital Entertainment: Achieved revenue of 5.7 billion yuan in Q3 24, with a yoy decline of -1.5%, below the market expectation of 6 billion yuan, with an EBITA loss of 180 million yuan, against the market expectation of 170 million yuan. The performance of Taotian in the Double Eleven promotion was outstanding, with a buyback of 4.1 billion US dollars in Q3 24, demonstrating a firm commitment to enhancing shareholder returns. The Double Eleven performance of Taotian in Q4 24 was outstanding, with 589 brands achieving over a billion in sales, a yoy increase of +46.5%, breaking historical records. The growth rates of transactions in beauty, 3C digital, and home appliances/home furnishings were the highest on the entire web, with a growth rate exceeding 50% in the number of orders placed by 88VIP members yoy, and double-digit growth in the number of members. The number of transactions in Taobao Live rooms surpassed 119 with 49 achieving over a billion in sales, a growth rate of over 100% yoy. Overall transaction amount and number of buying users in Taobao Live showed significant yoy growth. According to data analysis, the overall transaction amount for Taotian in the Double Eleven of Q4 24 increased by +10.2% yoy. In addition, Alibaba repurchased 4.1 billion US dollars of shares in this quarter, further reducing the net circulating shares by 2.1% compared to Q2 24, to achieve better returns for shareholders. As of the end of the third quarter, there is still 22 billion US dollars of repurchase amount remaining in the repurchase plan, valid until March 2027.