UOB Kay Hian Research analyst Julia Pan has maintained “buy” on Alibaba Group, albeit with a lower target price of US$308 ($415.90) from her previous estimate of US$313.
The lower target price implies 31 times FY2022 forward price-to-earnings (P/E) against 22% earnings per share (EPS) compound annual growth rate (CAGR) from FY2022 to FY2025, Pan writes in a July 9 report.
“The company is trading at 19.6 times 12-month forward P/E, 1 standard deviation (s.d.) lower than the historical mean of 25 times,” she adds.
Pan has also lowered her revenue forecast for the 1QFY2022 and FY2022 by 4% and 2% respectively.
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In addition, she has lowered her earnings per share (EPS) estimates for the 1QFY2022 and FY2022 by 10% and 2% respectively due to lower e-commerce sales in the 1QFY2022.
“We expect FY22 operating margins to constrict (FY2022/FY2023 non-generally accepted accounting principles (GAAP) operating margin change of -2 percentage points or ppts/+2ppts) from the investment in Taobao Deals, community group purchase (CGP) and Lazada,” she writes.
“We forecast 35%/29% y-o-y 1QFY22/FY22 revenue growth and 3%/4% decline in Non-GAAP net profit,” she adds.
In the 1QFY2022, Pan says she expects the group to see slightly lower growth in the 1QFY2022 in China’s e-commerce segment due to the high-base effect in 2020.
The growth is also likely to be impacted by AliCloud’s lost collaboration with TikTok.
The collaboration was estimated to be worth US$800 million annually, representing less than 9% of Alibaba’s cloud revenue for the FY2021.
A delay in contract signing due to the restructuring of the group’s cloud business unit restructuring is also likely to further impact the group’s cloud revenue growth in the FY2022.
“As such, we expect AliCloud’s revenue to grow 35% y-o-y to RMB16.7 billion ($3.48 billion) in 1QFY2022 with an adjusted EBITA margin of -1%,” says Pan.
However, Pan expects strong momentum from the group’s Taobao deals segment, which the group views as an attractive segment with a total addressable market of RMB15 trillion and with a penetration rate of less than 10%.
According to Pan, the market expects this penetration to reach 30% to 40%, implying a market opportunity of RMB4.5 trillion to RMB6 trillion.
“Taobao Deals is building a full-category direct sourcing supply system focusing on grocery goods, aiming to become the largest value-for-money integrated e-commerce platform. Taobao Deals achieved a monthly average user (MAU) of 150 million in Mar 21, which was the same level as PinDuoDuo in 2017 (when its gross merchandise value (GMV) was RMB141 billion and revenue was RMB1.7 billion),” says Pan.
That said, she does not expect Taobao Deals and the community grocery segment to contribute “meaningful revenue” in the FY2022.
Alibaba has set a goal of adding 100 million annual active customers (AAC) from 891 million in FY2021 to achieve 1 billion AAC in China in FY2022.
This will be done through multiple channels including Taobao, Ant Financial and CPG.
The group also aims to double its AACs overseas from 240 million in the 4QFY2021 “in the next few years”.
The entering of Hema Bazaar and Nicetuan in Alibaba’s WeChat Mini-programme in April will help the group acquire users in a “cost-effective” manner.
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To this end, Pan has pegged the successful listing of Ant Group, improving the profitability of its cloud business and the continued growth from the group’s expansion as potential share price catalysts.
On the flip side, risks to the counter include the increasing number of e-commerce competition from PinDuoDuo, JD.com and TikTok, as well as a higher number of merchants’ acquisition channels.
Shares in Alibaba closed US$6.09 or 3.05% up at US$205.94 on July 12, New York time.
Photo: Bloomberg
