Zhongtai: Initially rates BABA-W (09988) as "buy" rating, cloud + AI opens up new growth space.

Zhongtai released a research report stating that BABA-W (09988) focuses on two major development themes: "e-commerce" and "AI+ cloud". Cloud + AI opens up new growth space, and e-commerce business line is expected to see profit improvement. The bank forecasts the company to achieve revenue of 1.14 trillion/1.28 trillion/1.42 trillion yuan for the fiscal years 2027-2029, with adjusted net profit of 93 billion yuan/135.7 billion yuan/170 billion yuan. Using the segmented valuation method, the domestic e-commerce business refers to the leading e-commerce platform with a 26-year PE valuation of 7.0x, and the cloud computing business refers to overseas leading cloud vendors with a 26-year PS valuation of 5.4x. The estimated total market value of China's core business and Aliyun is 2.4 trillion yuan (equivalent to 2.7 trillion Hong Kong dollars). First coverage, rated "buy". Zhongtai's main views are as follows: E-commerce business line: Traditional e-commerce operates steadily, expanding new scenarios and new users in real-time retail Taoteen is one of the largest comprehensive e-commerce platforms in China in terms of GMV and user size, with a strong user base accumulated over the years (already accumulated 62 million core users of 88VIP), with a relatively stable market position contributing stable profits and cash flow to the company (the non real-time retail business of the core e-commerce group currently contributes approximately 200 billion yuan/year of adjusted EBITA); Since 2025, the company has expanded its user and business scenarios through significant investments in real-time retail, bringing in new user increments, increasing user frequency, and cross-driving the growth of traditional e-commerce. Meanwhile, the order volume and revenue of flash sale business have also seen substantial growth (with a 47% year-on-year increase in revenue in fiscal year 2026). As the business scale increases, with the strengthening of "anti-monopoly" regulation, it is expected that the loss scale of real-time retail will also narrow further, and according to management guidance, the flash sale business is expected to achieve positive UE by the end of fiscal year 2027, and achieve overall profitability by fiscal year 2029. AI business line: Realize the full-stack layout of [computing hardware - cloud services - large models - AI applications] With the continuous iteration of large models and the expansion of AI Agent applications in programming, office, video generation, and other fields, the demand for AI computing power and model services is accelerating growth (reflected in the accelerated growth of token consumption volume and the sharp increase in ARR of model and AI application vendors). Alibaba's relative advantage in the AI field lies in its full-stack layout from hardware to application end. Hardware layer - Platypus has self-developed products in GPU, CPU, storage, and network interconnect chips. As of 26M5, the True Martial series chips have accumulated shipments of 560,000 pieces, with a high market share among domestic chips; Cloud infrastructure layer - Alibaba Cloud has a high market share in traditional IaaS and emerging AI IaaS fields. Meanwhile, with a full layout of self-developed models, Alibaba Cloud's MaaS revenue has grown rapidly, reaching 8 billion yuan in ARR for Alibaba Cloud MaaS and AI software subscriptions by 26M3, with management guidance to reach 30 billion yuan by the end of 26; Model layer - Improving the real-world execution capability of models (adapted for Agent models) and improving economic practicality has become a recent trend. Alibaba has a rich ecosystem of open-source and closed-source models and can quickly iterate models based on market demand and cutting-edge trends. Since 2026, dozens of models have been released, covering Agent pedestal models, full-modal models, multi-modal models, etc.; Application layer - The trend of AI applications this year is to expand cooperation ecosystems and focus on productivity scenarios (programming, office, etc.). Alibaba's current core layout in C-end applications is the Qianwen App and the AI assistant inside existing apps (such as the AI assistant in the Taobao App). Qianwen has already connected with various applications within the Alibaba ecosystem, with diverse service scenarios, and in the B-end, there are products targeting different groups, including the enterprise-level AI work platform Wukong, the intelligent office body Qoder Work, and the cross-border trade vertical Agent Accio Work. Forming an AI organizational structure with ATH as the core, covering multiple links from cutting-edge exploration to practical applications Since 2025, Alibaba has made multiple adjustments to its AI-related architecture and has now formed an organizational structure with Alibaba Token Hub as the core, led by Group CEO Jason Wu, with the core goal of "creating tokens, transporting tokens, and applying tokens", covering cutting-edge exploration (Alibaba Future AI Research Institute), basic model development (Token Foundry division, created by the merger of Tongyi Big Model division and Future Life Lab), model services (MaaS business unit), and the landing of AI applications (Qianwen business unit, Wukong business unit). Risks Macro consumer demand recovery weaker than expected, intensification of industry competition, real-time retail business reduction in loss not as expected, AI application demand growth slower than expected, increased capital expenditures leading to short-term cost and cash flow pressures, and risks of data updating not being timely.