JP Morgan: BABA-W (09988) quarterly results may redefine market observation indicators, lowering target price to HK$195.

JPMorgan issued a research report stating that it maintains a "overweight" rating on Alibaba Group Holding Limited (09988), and has lowered the target price from HKD 200 to HKD 195, equivalent to a forecasted P/E ratio of 16 times for the 2028 fiscal year. The core e-commerce business is valued at a forecasted P/E ratio of 14 times for the 2026 fiscal year, and the cloud business is valued at a forecasted P/E ratio of 6 times for the 2026 fiscal year. Alibaba will announce its performance for the first quarter of 2026 (quarter ending in March), with its stock price already being significantly revalued due to the prospects of China's artificial intelligence infrastructure construction. The growth in cloud computing revenue is the main financial support. The market generally expects Client Management Revenue (CMR) to grow by 4% to 9% this quarter, with cloud business external revenue growing by about 40%, while the "other businesses" are expected to incur losses of RMB 10 billion to RMB 15 billion. E-commerce remains the main profit driver, but investors generally believe that as long as the performance is "stable," it is acceptable. The bank believes that the market has misconceptions about two of these expectations. It expects that Alibaba's announced Client Management Revenue growth rate will be around 1%, and the losses in "other businesses" will be close to RMB 20 billion. The expected cloud business performance is considered to be in line with expectations. The overall impact of the combined EBITA is slightly negative, but what is more important is the "composition structure" rather than the magnitude. JPMorgan believes that the stock price may perform poorly initially due to the CMR figures this quarter, predicting that the company's future quarter results may redefine market observation metrics. If the company discloses "comparable CMR" in its financial report and investors focus on EBITA trends, the decline in the stock price will be limited. The more lasting risk lies in excessive questioning of investments. If management can convincingly define Spring Festival expenses as "one-off" and guide for significantly lower expenses in future quarters, this quarter will be a "clearance event" - bottoming out of profits, followed by improvement in trends. If not, the market will begin pricing the "open-ended consumer AI investment cycle," coupled with the drag from take-out, e-commerce valuations will be compressed. The bank leans towards the former, but has limited confidence in the future trends of questioning. In terms of e-commerce fundamentals, the bank is more confident: it believes that although a flat EBITA is not sufficient to drive revaluation on its own, the direction is positive, and with the improvement in competitive base period, there should be further improvement in the coming quarters.