CICC: Maintain an outperform rating on BABA-W (09988) with a target price of HK$172.

CICC released a research report stating that currently, BABA-W (09988) trades on the Hong Kong stock market at a price-to-earnings ratio of 25 times FY27 and 15 times FY28 non-GAAP, while Alibaba Group Holding Limited Sponsored ADR (BABA.US) trades on the US stock market at a price-to-earnings ratio of 24 times FY27 and 15 times FY28 non-GAAP. The bank has lowered the FY27 and FY28 revenue forecast by 3% and 4% to 1.1474 trillion yuan and 1.301 trillion yuan, respectively, due to a CMR accounting adjustment; raised the FY27 and FY28 non-GAAP net profit forecast by 9% and 5% to 91.1 billion yuan and 147.1 billion yuan, respectively, due to an increase in cloud computing profit margin and flash purchase optimization UE. The bank uses a sum-of-the-parts valuation, giving the e-commerce business (excluding flash purchase) an 8x P/E and the cloud computing business an 8x P/S based on FY27, maintaining a target price of HK$172 for the Hong Kong stock and $178 for the US stock, and maintaining an outperform industry rating, with an upward potential of 30% and 32% for the current Hong Kong and US stock prices. Key viewpoints of CICC are as follows: 4QFY26 revenue and adjusted EBITA lower than expected The company announced its 4QFY26 performance: revenue increased by 2.9% to 243.4 billion yuan, excluding the impact of asset removal, comparable calibers increased by 11%, with CMR in line with the bank's expectations; adjusted EBITA decreased by 84.4% to 5.1 billion yuan year-on-year, below market expectations, due to increased investment in large models and promotional investment in the Qianwen App during the Spring Festival. MaaS drives continued acceleration of cloud revenue In 4QFY26, Alibaba Cloud's revenue increased by 38%, external customer revenue increased by 40%; adjusted EBITA reached 3.8 billion yuan, with a profit margin of 9.1%; cash capital expenditure was 26.9 billion yuan. The company emphasized market share as the primary goal in the cloud sector, with AI-related product revenue reaching 897 million yuan, accounting for 30% of external revenue. The current AI models and application services annualized recurring revenue (ARR), including the Bailian MaaS platform, reached 8 billion yuan, and the company expects it to reach 30 billion yuan by the end of FY26; considering the demand for agents and the price increase of cloud products, the bank expects cloud revenue to increase by 42% in 1QFY27. The company expects the scale of data centers to increase more than tenfold in 10 years from 2022, with annual capital expenditure exceeding the previous plan of 380 billion yuan. Due to strong user demand, significant price potential, and the increasing proportion of high-margin MaaS businesses, the company expects the adjusted EBITA profit margin of the cloud to significantly improve in the coming quarters, with the bank estimating that it will reach 11% in 1QFY27. Sequential improvement in e-commerce, continuous focus on flash purchase UE optimization In 4QFY26, customer management revenue (CMR) increased by 1%, largely due to adjustments in the accounting treatment of merchant cooperation project expenses, with comparable calibers increasing by about 8%; the adjusted EBITA of the Chinese e-commerce group decreased by 40% to 24 billion yuan year-on-year, due to increased investment in flash purchases. The company stated that with logistics efficiency and order structure optimization, it is expected to achieve positive monthly UE by the end of FY27, with the pace of loss reduction slightly accelerating, the bank forecasts that the flash purchase adjusted EBITA loss in 1QFY27 will be 1.38 billion yuan; in 4QFY26, the adjusted EBITA of the international digital business was close to breakeven, due to the improvement in the operational efficiency of AliExpress. Looking to FY27, the core e-commerce business may still be under pressure due to soft consumption and regulatory compliance pressures, with the integration of the Qianwen App into Taobao and Tmall in May, the synergy between AI and e-commerce remains to be verified. Risk Warning: Uncertainty in macroeconomic and regulatory environment, AI progress falling short of expectations, intensifying competition risk.