Performance review

• 4QFY22 performance exceeded market expectations

The company announced 4QFY22 results: thanks to the better-than-expected performance of Chinese business and local life, revenue rose 9% year-on-year to 204.1 billion yuan, exceeding market expectations by 1.7%. After adjusting Ebita 15.8 billion yuan, non-GAAP net profit fell 25% year-on-year to 21.5 billion yuan, higher than market expectations of 15.9%, mainly due to better-than-expected cost control.

Trend of development

• User growth is solid, GMV growth is slowing, and Chinese business and local life are driving higher-than-expected income growth.

In the year to March, BABA's annual active consumers (AAC) of China's retail business increased by 89 million to 903 million, while Tate's AAC exceeded 300m. Affected by the epidemic, macro weakness and competition, China's business GMV grew by only 2 per cent to 7.98 trillion yuan in fiscal year 2022. In terms of revenue split, 4QFY22 China business grew 7.6% year-on-year to 140.3 billion yuan, of which customer management income was unchanged at 63.4 billion yuan, direct sales and other business income increased 14% to 73 billion yuan, and local living services increased by 27.3% to 12.1 billion yuan, mainly due to the growth of annual active users and orders, the decline of subsidy rate and the contribution of Gaode. Cloud computing business increased by 12.5% to 19 billion yuan compared with the same period last year, mainly due to the decline in the growth rate of demand in the Internet industry and the delay in delivery under the epidemic.

• Reducing costs and increasing efficiency is still the main theme, focusing on high-quality growth.

FY4Q22 BABA's adjusted EBITA fell 30.1 per cent year-on-year to 15.8 billion yuan, and the adjusted EBITA profit margin was 7.7 per cent, higher than the consensus 4.3ppt, mainly due to cost reduction and efficiency and prudent control of expenses. Non-GAAP 's net profit fell 24.4 per cent year-on-year, and the net interest rate reached 10.5 per cent. We expect FY23 to continue to optimize the launch of new business, and the losses of Taote, Amoy, ele.me and other businesses are expected to gradually narrow.

• Under the impact of the epidemic, the performance of 1QFY23 is expected to bottom out, and 618 is concerned about the recovery on the demand side.

Since the outbreak and the escalation of prevention and control in March, the supply chain and logistics have been disrupted, causing great disruption to the demand side. Considering that Shanghai and Beijing, which are seriously affected by the epidemic, account for a high proportion of company transaction volume, we expect a low double-digit decline in GMV in April. Due to the impact of last year's high base, it is expected that the revenue and profits of online platform 1QFY23 will still be under pressure. The monetization rate of customer management income is expected to remain stable compared with the same period last year, and the direct business has performed better than Taobao, driven by businesses such as box horses, and we expect 1QFY23 China retail revenue to decline 8 per cent year-on-year.

Profit forecast and valuation

The company's US and Hong Kong stocks are currently traded at 2023 and 9.0 times non-GAAP price-to-earnings ratios of 11.4 and 9.0 for the 2024 fiscal year. In view of the impact of the epidemic on profits, we kept the revenue for fiscal year 2023 basically unchanged, lowered the non-GAAP net profit forecast by 7% to 131.8 billion yuan, and kept the revenue for fiscal year 2024 basically unchanged, taking into account the impact of the epidemic. 1% to 169.1 billion yuan in non-GAAP net profit forecasts for fiscal year 2024.

We maintain our outperforming industry rating and, taking into account the downward shift in the valuation hub of e-commerce, we cut our SOTP-based target prices by 5 per cent and 4 per cent to $140 and HK $137 respectively (core ecommerce adjusted from 14xP/E to 13xP/E in fiscal year 2023), corresponding to non-general accounting quasi-P / E ratios of 1915 and 1915 in 2024, with 70 per cent and 69 per cent room for growth, respectively.

Risk

COVID-19 epidemic uncertainty, macroeconomic and regulatory uncertainty, competition intensified.