East Asia Securities adjusted its outlook on BABA-W (09988), increasing the target price by 10% to HK$196 from HK$178 but downgrading the investment rating from "Buy" to "Add." The firm noted that Alibaba is expected to announce its Q2 fiscal results mid-month, with overall revenue growth projected to slow to 4% YoY. However, cloud revenue growth is anticipated to accelerate further, exceeding 30%, marking a potential highlight. China e-commerce revenue is forecast to rise 12% YoY, driven mainly by contributions from flash sales.

The report highlighted that continued investments in food delivery and flash sales, alongside significant capital expenditures in AI-related infrastructure, may weigh on adjusted profit margins in the near term. Currently, Alibaba's forward 12-month P/E stands at 21.1x, slightly above its historical average (19.2x) since its Hong Kong listing but still at a substantial discount compared to U.S. and European-listed AI cloud peers.

With expanding domestic AI applications, the firm sees room for upward valuation adjustments in Alibaba’s cloud segment, supporting overall valuation recovery. East Asia Securities assigned a target FY2027 P/E of 21.8x and projected adjusted EPS of RMB 8.4 for the same fiscal year.