CICC released a research report stating that BABA-W (09988, BABA.US) currently trades at 24/23x FY26 and 16/16x FY27 non-GAAP P/E for its Hong Kong and U.S. shares. The firm largely maintains its FY26 and FY27 revenue forecasts while raising non-GAAP net profit attributable to shareholders by 12% for both years, primarily due to better-than-expected reduction in food delivery losses, partially offset by increased losses in other businesses.

Using a SOTP valuation, CICC assigns a 14x P/E to the e-commerce business and 7x P/S to the cloud computing segment based on FY27 projections. It maintains target prices of HK$197 for Hong Kong shares and $204 for U.S. shares, reiterating an Outperform rating, implying 25% and 27% upside potential from current levels.

Key highlights from CICC's analysis: 1. **2QFY26 Revenue and Adjusted EBITA Beat Expectations** BABA-W reported 2QFY26 (3Q25) revenue growth of 4.8% YoY to RMB247.8 billion, or 15% YoY on a comparable basis excluding asset disposals, surpassing expectations due to strong China e-commerce performance. Adjusted EBITA fell 77.6% YoY to RMB9.1 billion, weighed by higher investments in Taobao Deals but still above estimates thanks to better cloud and international business results.

2. **Cloud Revenue Growth Accelerates** 2QFY26 cloud revenue grew 34% YoY, with internal and external customer revenue up 29% and 51%, respectively. Internal growth was driven by AI model training demand and product upgrades (e.g., Amap, DingTalk, Quark). Cloud EBITA reached RMB3.6 billion (9% margin), while cash capex hit RMB31.5 billion. CICC expects further capex increases given robust demand, projecting cloud revenue to sustain >30% YoY growth for several quarters amid AI adoption (e.g., Qwen models) and deeper client engagement.

3. **Taobao Deals UE Improves with Stable Market Share** Taobao Deals’ EBITA loss widened to RMB36.7 billion in 2QFY26 due to heavy subsidies in July-August. However, the company noted UE per order has halved from peak levels since October, supported by order mix optimization, higher ASP, and fulfillment efficiency. CICC forecasts a narrower loss of RMB19 billion for 3QFY26.

4. **E-Commerce CMR Under Pressure** CMR grew 10% YoY this quarter, while China e-commerce EBITA (ex-Deals) rose mid-single digits. With softer post-4Q consumption, fading government subsidies, and high-tech service fee comparables, CICC anticipates 3QFY26 CMR growth of 6%, reflecting pressure on both GMV and CMR.

**Risks**: Macroeconomic and regulatory uncertainties, slower-than-expected AI progress, intensifying competition.