Great Wall Securities: Maintains "Buy" rating on BABA-W (09988), target price lowered to HK$192

Dahua Jixian released a research report, maintaining a "buy" rating on BABA-W (09988), lowering the revenue and profit forecast for the end of the third quarter of March by 2% and 20%, respectively, implying a year-on-year increase of 4% and a decrease of 41%. Non-GAAP profit forecast for 2027 fiscal year is also reduced by 5%, indicating a net profit margin of 12%, with the target price reduced from HK$206 to HK$192. The report stated that Alibaba's profit for the third quarter of fiscal year 2026 ending December last year fell short of expectations, with revenue increasing by 2% year-on-year to RMB 284.8 billion, which was 1.7% lower than market expectations. Non-GAAP net profit was RMB 16.7 billion, a 44% year-on-year decrease, lower than the bank's forecast, mainly due to increased investment in Taobao's instant e-commerce. The bank pointed out that the company's mainland e-commerce revenue increased by 1% year-on-year to RMB 159.3 billion, with a 43% year-on-year drop in EBITA, adjusted EBITA profit margin of 25%. Customer management revenue (CMR) increased by 1% year-on-year to RMB 102.7 billion, with growth slowing mainly due to weak growth in Gross Merchandise Volume (GMV) and the declining impact of software service fees. Cloud business revenue grew faster at 36%, with external cloud revenue increasing by 35% year-on-year (compared to 29% in the second quarter), driven by triple-digit growth in AI-related revenue. EBITA profit margin remained at 9%. Alibaba's management expects significant narrowing of losses in the fourth quarter of immediate commerce, with CMR growth and profitability capabilities recovering, and continued strong growth in cloud business revenue. The group's target for AI and cloud business revenue in the next five years is to exceed USD 100 billion, mainly driven by MaaS, equivalent to a compound annual growth rate of 40%, and the target EBITA profit margin is 20%. The bank has raised its forecast for fourth quarter and fiscal year 2027 cloud revenue growth to 40% and 41% respectively, based on strong demand and price increases for AI products.