Magellon: Maintaining Alibaba-SW (09988) "Outperform" rating, target price adjusted to HKD 135.5

Morgan Stanley released a research report stating that Alibaba-SW (09988) overall revenue and profit in the third quarter of this year met expectations. In particular, cloud business revenue met expectations, with adjusted EBITA being 12% and 14% higher than the bank and market forecasts respectively. Morgan Stanley raised Alibaba's adjusted EBITA forecast for the 2025 to 2026 fiscal years by 1%, while lowering its H-share target price by 3% to 135.5 Hong Kong dollars, maintaining an "outperform" rating. Morgan Stanley mentioned that they still believe Alibaba International Digital Commerce (AIDC) division's profit margin performance is weak, with adjusted EBITA at -9.2%, and indicated that the market share of "Trendyol" and "AliExpress" and investments in its new model "AliExpress Oil Plan" may continue to affect the profit margin of the AIDC division. The report states that although the monetization of the Taobao/Tmall group has improved, and the impact of Taobao service fees for the entire quarter should bring better results, the bank believes that subsidy programs, insufficient monetization tools in live streaming and flash sales, and continued commitment to investing in user experience will continue to affect the company's profitability and make the profit margin performance of the Taobao/Tmall group more unstable. The bank also noted that with the gradual adoption of the all-platform marketing tool "Full Station Promotion" since its launch in April and Taobao charging a 0.6% service fee based on the total amount of goods traded (GMV), they have seen a 3.6% growth in the Taobao/Tmall group, indicating that the gap between GMV and core advertisement (CMR) growth is narrowing.