CICC has released a research report, noting that Alibaba's Hong Kong and U.S. shares are currently trading at 18/16 and 12/10 times FY27/FY28 non-GAAP P/E, respectively.
The bank has largely maintained its FY27/FY28 revenue forecasts. Considering improved operational efficiency in e-commerce and flash sales, it has raised FY27/FY28 non-GAAP net profit attributable to ordinary shareholders by 9% and 2% to RMB 99.6 billion and RMB 149.9 billion.
Using a sum-of-the-parts valuation, based on FY27, it applies a 7x P/E to the core e-commerce business (excluding flash sales) and an 8x P/S to the cloud computing business. It maintains its target prices of $178 for the U.S. shares and HK$172 for the Hong Kong shares, reiterating an Outperform rating. This implies a potential upside of 60% and 81% from the current Hong Kong and U.S. share prices.
Key Points from CICC
1QFY27 Non-GAAP Net Profit Forecast Above Consensus
The bank estimates Alibaba's 1QFY27 revenue grew 9.4% year-over-year to RMB 270.8 billion, with adjusted EBITA of RMB 25.85 billion and non-GAAP net profit attributable to ordinary shareholders of RMB 25.16 billion. The profit beat is attributed to better-than-expected overall profitability in e-commerce and flash sales.
Cloud Computing Revenue Growth Accelerates Beyond Expectations
CICC forecasts that 1QFY27 total cloud revenue and external cloud revenue both grew 45% year-over-year. The acceleration beyond expectations is primarily driven by the MaaS business, product price increases, and further penetration gains, with the trend expected to persist.
The bank estimates 1QFY27 cloud computing EBITA margin improved sequentially to 11.8% and maintains a long-term target margin of 20%. The company plans accounting adjustments to enhance business synergy and transparency, including integrating T-Head into the cloud unit. As T-Head's products were largely used internally by or sold through Alibaba Cloud, the impact on Alibaba Cloud's revenue recognition is minimal.
Additionally, costs for model training and the Qwen APP will be separately itemized within the 'All other' segment. CICC expects 1QFY27 losses in the 'All other' segment to narrow sequentially to RMB 16.9 billion, mainly due to lower customer acquisition costs for the Qwen APP.
E-commerce Profitability and Flash Sales Loss Reduction Better Than Expected
The bank estimates 1QFY27 customer management revenue declined 7.5% year-over-year, partly offset by merchant subsidies. Excluding this impact, it estimates a 1-2% year-over-year growth, with a slowdown pace similar to the National Bureau of Statistics' online physical goods retail data, and a stable monetization rate.
It forecasts core e-commerce EBITA (excluding flash sales) declined 3.1% year-over-year. The gap versus the growth rate of customer management revenue narrowed compared to the previous quarter, beating market expectations and reflecting the platform's ongoing optimization of subsidy allocation.
The bank estimates 1QFY27 flash sales EBITA loss was RMB 10.4 billion, with unit economics losses narrowing further while market share was largely maintained. CICC believes the company will continue to focus on higher average order value and non-food retail categories, persistently optimize subsidies, and enhance capital efficiency across the group.
Risk Factors
Key risks include macroeconomic and regulatory uncertainty, intensifying competition, and slower-than-expected progress in AI.