UOB Kay Hian analyst Julia Pan has maintained “buy” on Alibaba with a higher target price of US$355 ($473.50) as the group’s 3QFY2021 results came in above estimates from the brokerage and street.
Alibaba reported 37% y-o-y higher revenue for the quarter of RMB221.08 billion ($45.68 billion) due to higher revenue contribution across all segments with the exception of digital media.
Higher revenue during the quarter was led by revenue from Cainiao, Cloud and International e-commerce.
Gross profit stood 29% y-o-y higher at RMB99.8 billion.
Non-GAAP (or generally accepted accounting principles) net profit stood 27% y-o-y higher at RMB59.2 billion.
Alibaba’s core commerce revenue came in at RMB153.7b, up 39% y-o-y, with customer management revenue growing by 20% y-o-y to RMB101.9 billion.
Annual active buyers grew 10% y-o-y to 779 million, while mobile monthly active users (MAU) grew 9.5% y-o-y to 902 million during 3QFY21.
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Marketplace-based core commerce adjusted EBITA increased 10% y-o-y to RMB73.3 million, which is lower than expected due to the increased strategic investments in certain new initiatives within China retail marketplaces, such as Taobao Deals, Taobao Live, Taobao Short Video and Taobao Grocery.
“They are expected to expand Alibaba’s addressable market in China by enhancing consumer experience and loyalty and increasing penetration into less developed areas,” says Pan.
Moving forward, Alibaba says it will continue investing in less developed areas by tapping in Taobao Deal’s MAU base of 100 million as at December 2020.
In terms of community group purchases, Alibaba will shift its focus towards consumer value proposition to ensure long-term sustainability as compared to aggressive subsidies practiced by its competitors.
On the plans of Ant Group’s IPO, Alibaba highlighted that the plan remains uncertain for now but that it should not affect consumer spending on Alibaba’s core commerce segment.
SEE:Ant Group's valuation drops to RMB700 bil on crackdown
As such, Pan has raised her revenue forecasts for FY2021 and FY2022 by 4% and 6% respectively to reflect the continued higher-than-expected revenue growth.
She has, however, lowered non-GAAP net profit forecasts by 2-8% for the potential increase in investment on core commerce.
“Our target price implies 30 times FY2022 forward price-to-earnings or P/E (1 standard deviation above its 5-year historical mean of 24.9 times) on the back of a 25% earnings per share (EPS) compound annual growth rate (CAGR) from FY2022-2025,” writes Pan.
“Alibaba has since recovered over 25% from its bottom of US$211.23 in late-December 2020. We think that Alibaba’s Digital Economy still presents a bright future for investors, given the potential rerating catalyst from Alicloud increasing profitability as well as resolving its regulatory burden,” she adds.
Shares in Alibaba closed 1.2% lower at US$262.59 on Feb 8.
