East Asia Securities: Raise BABA-W (09988) target price to HK$196, downgrade rating to "neutral"

East Asia Securities has released a research report stating that it has lowered the target price of BABA-W (09988) from 178 Hong Kong dollars to 196 Hong Kong dollars, a decrease of 10%, but its investment rating has been downgraded from "buy" to "hold." The report pointed out that Alibaba is expected to announce its second quarter financial performance in mid-month, with overall revenue growth expected to slow to 4% year-on-year. However, cloud business revenue growth is expected to accelerate to over 30%, which is seen as a potential bright spot. Chinese e-commerce revenue is expected to increase by 12% year-on-year, mainly benefiting from the contribution of flash sale business. Due to the increased investment in the delivery and flash sale businesses, as well as the significant increase in capital expenditure on AI-related infrastructure, the group's adjusted profit margin may be dragged down in the short term. The report stated that Alibaba's forecasted price-to-earnings ratio for the next 12 months is 21.1 times, higher than the average since its listing in Hong Kong (19.2 times) by approximately 0.2 standard deviations, but still at a significant discount compared to AI cloud companies listed in Europe and the US. As AI applications become more widespread in China, there is still room for the valuation of the group's cloud business to be adjusted upwards, supporting the recovery of the group's valuation. Therefore, Alibaba is given a target price-to-earnings ratio of 21.8 times for the fiscal year 2027, with an additional adjusted earnings per share of 8.4 yuan for the fiscal year 2027 for the group.