Orient: Maintain "Buy" rating for BABA-W (09988) AI-driven Alibaba Cloud expected to continue accelerating.

Orient released a research report stating that it maintains a "buy" rating on BABA-W (09988), predicting the company's operating revenue for FY2026-2028 to be 1.03 trillion / 1.14 trillion / 1.25 trillion yuan, and adjusted net profit to be 91.6 billion / 135.8 billion / 176.1 billion yuan. Based on comparable company valuation multiples, the company's market value is calculated at 3.5656 trillion yuan, corresponding to a per share value of 207.7 Hong Kong dollars (with a RMB to HKD exchange rate of 1.113). AI-driven Aliyun is expected to continue to accelerate, with e-commerce under pressure but flash sales steadily reducing losses, and a firm strategy of advancing in the consumer goods sector. Orient's main points are as follows: Chinese e-commerce: The industry's cold winter is slowing down e-commerce, with Flashbuy increasing losses 1) E-commerce: The sector is expected to achieve CMR 1054.8 billion yuan in FY26Q3 (yoy +3.4%). Since Q4, as national subsidies enter a period of high base numbers, combined with the impact of tax policy, the overall industry growth rate has declined. According to data from the National Bureau of Statistics, the growth rates of physical goods online retail sales in October and November 2025 were 4.9% and 1.5% respectively, with a significant slowdown of -2.4/-3.4 pcts compared to the previous month. At the company level, the 0.6% commission rate increase in this quarter has completely balanced the boost to CMR, and it is expected that there will still be pressure during the high base period in the first half of FY26. 2) Instant retail: The company's estimated loss from its instant retail business in FY26Q3 is around 21.5 billion yuan, with a per capita loss of 3.7 yuan (adjusted from the expected 4.0 yuan). The improvement in losses trend on a month-on-month basis in this quarter is in line with expectations, and market share and order structure are maintained at a healthy level. Taobao Flashbuy, as an important high-frequency consumption scene, is of great significance for the flow and user retention of the Taobao ecosystem, and fulfillment can also enhance fulfillment efficiency in synergy with long-distance e-commerce. The company believes that the progress of Taobao Flashbuy business is smooth, with a firm willingness to invest, and the company will not easily reduce its market share, looking forward to the potential of Taobao Flashbuy to reduce losses in the medium to long term, as well as the synergistic effect of volume and user growth on the main e-commerce business. Cloud Intelligent Group: Further acceleration on a month-on-month basis & External revenue speeding up, AI driving cloud opens up valuation space for Ali The company expects the Cloud Intelligent Group to achieve revenue of 43.49 billion yuan in FY26Q3 (yoy +37.0%), continuing to accelerate on a month-on-month basis, and external revenue also showing a significant increase compared to Q2. The high-speed release of demand for AI cloud continues in this quarter, and the company has been increasing its investment in AI applications since 25Q3, with applications such as Qwen, Quark APP, and Taobao AI Universal Search within the ecosystem expected to further expand the company's AI application scenarios, driving further growth in Ali Yun demand. As the only domestic cloud computing company with a full-stack AI layout, Aliyun is expected to generate a flywheel effect of cost reduction in computing power, model-driven cloud demand, and expanded application scenarios, achieving double-digit growth in revenue and profits. The company expects that there is still room for acceleration in Aliyun revenue, and the profit margin will maintain a stable and slight increase trend. Optimistic about the Davis double-click potential of Aliyun to achieve revenue valuation under further acceleration, opening up upward space for the company. Other segments: AIDC continues to reduce losses, increased investment in new businesses The company expects the AIDC segment to incur a loss of 1.89 billion yuan in FY26Q3, mainly due to increased investment in major promotion activities such as Black Friday, seasonal losses, and profit direction unchanged. The company expects all other segments to incur a loss of 7.12 billion yuan in FY26Q3, mainly due to increased spending on AI model training and increased investment in AI ToC & end-side applications such as Qwen app, Quark AI glasses, etc. The company continues to improve its AI product layout and increase investment in C-end AI business, looking ahead to the user entry point in the AI era, with MAU exceeding 100 million in just two months. The company is optimistic about the entry potential of Ali C-end AI applications, laying a good foundation for the user growth of Ali's AI ecosystem in the future. Models leading AI applications continue to expand, optimistic about the breakthrough potential of Ali's AI applications Ali's model research and development capabilities are strong, and the enhancement of multimodal models and agent capabilities is accelerating. The release of Qwen3-VLEmbedding and Reranker models on January 8 once again strengthened the multimodal understanding and retrieval capabilities. The conference on January 15 will further upgrade the task execution and agent capabilities of the Qwen3 app, with major version updates such as Qwen3.5 and Qwen4 expected to be released in FY26, with enhanced model capabilities and increased investment in AI applications, the company can further expand AI application scenarios. The company is optimistic about the breakthrough potential of the company's native AI applications and the potential of AI to empower other businesses within the company's ecosystem. Risk Warning Progress on Flashbuy business is slower than expected, intensification of industry competition, returns on capital investment falling short of expectations, and macroeconomic downturn.