CMSC: Upgrades rating of BABA-W (09988) to "buy" and raises target price to 165 Hong Kong dollars.

CMSC released a research report stating that BABA-W (09988) has been given a "buy" rating, with a target price adjusted to HK$165. The bank stated that the company is strengthening investments to capture the increasing demand for AI, and with its full range of AI products, believes that Alibaba is still the main beneficiary of the AI transformation trend in China. They are fully prepared to seize new AI opportunities, predicting that cloud revenue will increase by 11% and 21% year-on-year in the 2025/26 financial year, and have raised their total revenue forecast for the 2025 to 2027 financial years by 0% to 2%. They forecast a shareholder return ratio of around 5% for the 2025 financial year. It is reported that Alibaba's revenue for the third quarter of last year, ending in December, increased by 8% year-on-year, exceeding market expectations by 1%. Adjusted EBITA also saw growth, with a year-on-year increase of 4%, compared to a 5% decrease in the previous quarter. The quarter's Non-GAAP net profit also increased by 7% year-on-year, exceeding market expectations by 11%. The growth in Taobao Group was mainly driven by a 9% year-on-year increase in CMR and a 24% growth in wholesale business. CMSC pointed out that the growth of CMR is faster than the growth of GMV, reflecting that Alibaba's previous initiatives such as site-wide promotions and technology service fees have been effective. They have adjusted their revenue forecast for Taobao Group for the 2025/26 financial year to a 4% and 7% year-on-year increase, with CMR expected to increase by 6% and 7%. Taobao's adjusted EBITA is expected to remain stable in the 2025 financial year, and is expected to increase by 4% in the 2026 financial year.