Sealand: Bullish on Alibaba (09988) Cloud Business and Retail to Reduce Losses, Maintains "Buy" Rating with Target Price of HK$186.

Sealand released a research report stating that it is optimistic about the long-term growth potential of Alibaba's (09988) cloud business in terms of revenue and profit margins, as well as the potential for reduced losses in instant retail. The company continues to invest in AI-related products, with a clear "cloud + AI + chip" full-stack strategy, maintaining optimism for long-term revenue/profit growth. The company is expected to achieve revenues of 1.0275 trillion/1.117 trillion/1.24 trillion RMB in FY2026-2028, with net profits attributable to shareholders of 85.2 billion/107.3 billion/143.6 billion RMB, respectively. The bank gives Alibaba's combined target market value for the fiscal year 2027 as 3.104 trillion RMB, corresponding to a target price of 162 RMB/186 HKD, and maintains a "buy" rating. Key Points from Sealand: Financial Outlook: The bank expects Alibaba to achieve total revenue of 247.1 billion RMB (YoY+4.5%, QoQ-13.2%) in FY2026Q4 (corresponding to the first quarter of the natural year 2026), with adjusted EBITA down 79% YoY to 7.3 billion RMB, with an adjusted EBITA margin of 3%. This is mainly due to a slight increase in traditional e-commerce profits YoY, as well as ongoing investments in instant retail and AI-native application computing power. The China e-commerce group (China e-commerce + instant retail + China wholesale business) is expected to generate revenue of 124.5 billion RMB (YoY+8.4%), with an adjusted EBITA margin of 19%; the Alibaba International Digital Business Group is expected to generate revenue of 35.6 billion RMB (YoY+6%, QoQ-9%), with an adjusted EBITA margin of -1.1%; the Cloud Intelligence Group is expected to generate revenue of 42.5 billion RMB (YoY+41%, QoQ-2%), with an adjusted EBITA margin of 9.2%. China E-commerce Group: Growth in traditional e-commerce CMR is affected by accounting adjustments, demand, and the fading benefits of low base numbers, while instant retail continues to reduce losses. The bank predicts that total revenue for the China e-commerce group in FY2026Q4 will increase by 8.4% YoY, mainly driven by moderate growth in core e-commerce customer management (CMR) revenue (expected to increase by 1% YoY in reporting terms) and fast-growing flash sales business revenue (expected to grow by 58% YoY), with reported CMR revenue expected to increase moderately, mainly due to the accounting adjustment impact of incentives to top sellers (offsetting part of the marketing investment revenue), moderate growth in e-commerce overall (2.8% YoY growth in total retail sales of consumer goods in January-February 2026), an increase in tax compliance costs leading to the clearance of some merchants, and the fading advantages of low base numbers (1. Since September 1, 2024, the platform has started to charge a six-sided basic software service fee based on GMV; 2. In April 2024, the platform launched the AI advertising tool "Full Site Promotion" program, which was officially fully opened to all Taobao merchants in August 2024). The bank predicts that the adjusted EBITA for the China e-commerce group in FY2026Q4 will decrease by 42% YoY to 23.8 billion RMB, mainly due to a slight increase in traditional e-commerce profits YoY (the bank predicts a 0.1% increase in core e-commerce adjusted EBITA YoY), combined with losses from investment in instant retail (the bank predicts a loss of 18 billion RMB in FY2026Q4). It is recommended to continue to pay attention to the recovery trend of e-commerce overall demand, the performance of instant retail market share, and the pace of UE improvement in FY2026/2027 (the bank predicts adjusted EBITA for instant retail of -87.5 billion RMB/-42.7 billion RMB). Cloud Intelligence Group: Clear "cloud + AI + chip" full-stack strategy, maintaining optimism for long-term revenue/profit growth. The bank predicts that the revenue of the Cloud Intelligence Group in FY2026Q4 will increase by 41% to 42.5 billion RMB. In the company's Q4 2025 financial report conference call, management stated that Alibaba Cloud's commercial cloud and AI revenue, including MaaS, will exceed $100 billion in the next five years. The bank sees potential for Alibaba Cloud in the development of iterative basic models (e.g., Qwen3.5-Omni, Wan2.7-Image, Qwen3.6-Plus released from March 30 to April 2, 2026) and Maas revenue growth (establishment of the ATH business group around the creation, transmission, and application of tokens). The bank predicts that the adjusted EBITA for the Cloud Intelligence Group in FY2026Q4 will be 3.9 billion RMB, with an adjusted EBITA margin of 9.2%, and expects long-term profitability to increase with the strong demand for AI cloud, continued overseas cloud deployment, and partial replacement of self-developed chips. International Digital Business Group and All Other Businesses: 1) Clear long-term profit path for international business: the bank predicts that overall revenue for the Alibaba International Digital Business Group in FY2026Q4 will increase by 6%, with an expected adjusted EBITA of -0.4 billion RMB; 2) The bank predicts that total adjusted EBITA for all other businesses in FY2026Q4 will be -20 billion RMB, with a significant increase in losses QoQ, mainly due to continued investments in large model training, AI-native application computing power, and marketing expenditures for the Qianwen app during the Chinese New Year. The bank expects some continuing investment in computing power to have a certain degree of impact on profit. Profit Forecast and Investment Rating: Bullish on the long-term growth potential of cloud business revenue and profit margins, as well as the reduction in losses for instant retail. However, considering the ongoing investments in AI-related products, the bank adjusted its profit forecasts, predicting revenues of 1.0275 trillion/1.117 trillion/1.24 trillion RMB for the company in FY2026-2028, with net profits attributable to shareholders of 85.2 billion/107.3 billion/143.6 billion RMB respectively, and non-GAAP net profits of 72.2 billion/120.7 billion/157.1 billion RMB, with corresponding P/E ratios of 24.8x/19.7x/14.7x and non-GAAP P/E ratios of 28.9x/17.3x/13.3x. According to the SOTP valuation method, the bank neutrally gives a combined target market value of 3.104 trillion RMB for Alibaba in fiscal year 2027, corresponding to a target price of 162 RMB/186 HKD (exchange rate based on the real-time rate on April 11, 2026, where 1 HKD = 0.87 RMB), and maintains a "buy" rating. Risk Factors: Increased risks due to policy regulation; increased competition in e-commerce/instant retail industry; increased competition in cloud computing industry; uncertain risks related to AI technology investment; risks of organizational restructuring effects falling short of expectations; risks related to exchange rate fluctuations; performance outlook forecasts are for reference only.