JP Morgan raises BABA-W (09988) target price to HK$200, The value of Alibaba Cloud business has not been fully priced in.

JPMorgan released a research report stating that the adjusted earnings per share forecast for BABA-W (09988) for the fiscal years 2027 and 2028 have been raised by 4% and 3% respectively to reflect improved cloud profit margins. The bank has raised the target price for Alibaba's H shares from HK$195 to HK$200, and the target price for Alibaba's US stocks from $200 to $205, maintaining a "overweight" rating. JPMorgan has upgraded its confidence in the structural growth of Alibaba Group Holding Limited Sponsored ADR in the next 12 months. Alibaba disclosed that by the end of March, cloud revenue growth accelerated to 40% for the last quarter, with the annual running rate (ARR) of Model-as-a-Service (MaaS) expected to reach 30 billion by the end of the year. In addition, the cloud business EBITA profit margin guidance is expected to increase from 9% to double digits in the next one to two quarters, establishing Alibaba Cloud as China's largest AI and cloud service provider. However, the market is currently pricing Alibaba solely based on its classic e-commerce business, indicating that the value of Alibaba Cloud has not been fully priced in. The bank points out that according to the Sum of the Parts (SOTP) valuation method, the implied value of Alibaba Cloud far exceeds the current pricing in the consolidated equity. Although there are still risks in the market, such as the impact of customer management revenue (CMR) deductions on revenue in the next four quarters facing about a 7 percentage point drag, and the capital return signal is not yet clear, the improvement in cloud profit margins is the main short-term catalyst.