Shenwan Hongyuan Group: Maintain a "buy" rating on BABA-W (09988) with a target price of HK$197.

Shenwan Hongyuan Group released a research report stating that it maintains BABA-W (09988) profit forecast and buy rating. It is expected that the overall revenue of Alibaba Group for FY2026-FY2028 will be 103.86/114.34/125.06 billion yuan, with adjusted net profit attributable to shareholders of 101.9/145.5/183.6 billion yuan. According to the SOTP valuation method, the target valuation of the group as a whole is 34.124 billion RMB, corresponding to a target price of 203 USD/ADS, representing an upward space of 34%, and a target price of 197 HKD per share, corresponding to an upward space of 34% in the Hong Kong stock market. Key points from Shenwan Hongyuan Group: AI cloud growth will continue to be realized Referring to the past three years overseas, Capex increased - the trend of accelerating cloud revenue continues, and the domestic cloud factory's fundamentals can still be sustained next year. Domestic AI cloud growth drivers: upstream chip pressure partly relieved, downstream AI penetration rate still in the expansion period. Alibaba is a domestic rare cloud factory with a self-developed technology system stack of "chip-server-cloud computing operating system-large models". The revenue volume, revenue growth rate, and profit margin are all in the leading group in China, catching up with Google Cloud on a global scale, but the profit margin is still lower than overseas. The self-developed chips and the scale effect of self-owned scenarios are expected to continuously improve the profit margin in the long term. How to view ByteDance's competition in the Volcano Engine? The Volcano Engine focuses on the MaaS layer (model capability + low price), but Alibaba Cloud's advantages in full-stack solutions and ecosystem integrity are difficult to replicate in the short term. The current MaaS market size is still small, and Alibaba Cloud's leading position in the broader AIIaaS and overall cloud market is solid. Its growth logic lies in meeting the overall intelligent transformation needs of enterprises, not just providing single model calls. AI Increment One: Localization of AI chips, Pingtouge opens up foreign sales In the context of the surge in demand for localized computing power, its product performance is now on par with international mainstream levels and has successfully won bids for large-scale smart computing center projects. Not only is providing differentiated computing services crucial for Alibaba Cloud to improve profit margins, but it is also the core lever for offering full-stack AI solutions and binding customers. With the wave of domestic chip listings approaching, it will help internet cloud factories discover the value of self-developed chips. AI Increment Two: Seizing the C-end entry point, likely to start monetizing Overseas Chatbot monetization mainly involves subscription fees, APIs, and programming, but OpenAI is also trying to monetize through guided shopping. Domestic internet companies have significant advantages in traffic operations. Alibaba's layout of the AIC-end entry point aims to seize the dominance shift from "graphical user interface (GUI)" to "natural language interface (LUI)". By upgrading Alipay to a super assistant connecting Taobao, Gaode, Alipay, and other ecosystems, and launching the "Quark AI Glasses" deeply integrated with the ecosystem, "conversation" becomes the starting point for connecting all services. If the ecological loop of "C-end AI entry point-developer-user" is established, Alibaba will smoothly transform its existing advantages in e-commerce, local life, and other businesses into user stickiness and data assets in the AI era. Risk Warning: Macro factors affecting enterprise cloud demand, slower progress in the domestic AI industry, intensified competition among domestic cloud factories.