Overall performance: Revenue grew steadily, and profits were pressured by increased competition in e-commerce at home and abroad. With 3QFY2024, the company achieved revenue of 26.3 billion yuan, an increase of 5% over the previous year, with a steady growth rate. Among them, the International Digital Business Group, Local Life Group, Cainiao Group, and Dawen Entertainment are clearly driving the growth rate, while the growth rate of the Taotian Group and cloud business is lackluster. The company's non-GAAP net profit for the quarter was 48 billion yuan, down 4% year on year, and the non-GAAP net interest rate increased 2% year on year to 52.8 billion yuan. The adjusted EBITA profit margin increased 6 pct year over year, mainly benefiting from the increased profit momentum of the subsidiary group after the spin-off, and the narrowing of losses in various businesses other than Taotian. Since FY2024, the company has completed the withdrawal of 1.7 billion US dollars of non-core assets. It is worth mentioning that Hungry is an important near-market asset for the company, and the company has no plans to sell it. The company repurchased $2.9 billion (36.6 million shares of ADs) in the December quarter. The company announced that the board of directors approved an increase of 25 billion US dollars in the share repurchase plan, which is valid until the end of March 2027. There will still be a repurchase amount of US$35.3 billion for the next 3 fiscal years (accounting for 18% of the current market value).
Taotian Group: Revenue growth is steady, and the company will continue to invest in exchange for GMV and share growth. Taotian Group's revenue for the quarter was +2% year-on-year to 129.1 billion yuan. Among them, retail customer management revenue remained flat year-on-year, GMV growth was slightly negative, and direct management and other revenue were +2% year-on-year. Taotian's EBITA profit margin fell from 47% to 46% this quarter. The main reason was that the company continued to invest in users and sales rates increased slightly. We expect the company to maintain strategic investment in Aotan while maintaining a relatively stable profit margin.
Cloud computing: AI revenue is growing rapidly, and business profit margins have increased significantly. Cloud business revenue for the quarter was +4% year-on-year to $28.1 billion, and the adjusted EBITA margin increased from 5% to 8%. At present, AI is beginning to contribute to public cloud revenue. In the future, as AI continues to grow rapidly, the business revenue growth rate is expected to continue to increase. By reducing project-based contract revenue with low profit margins, the company increases the share of revenue from public cloud products and services, and drives the optimization of profitability.
Investment advice: Maintain a “buy” rating. In the short term, domestic consumption is still recovering slowly. In the long run, the company insists on future investment, monetizing non-core businesses, and increasing shareholder returns, and adjusted the company's FY2024-FY2026 revenue forecast to 9433/10180/1097.8 billion yuan, with an adjustment of +0.2%/-1.6%/-3.7%. We basically kept our revenue forecast unchanged for FY24 and lowered our revenue forecast for the 25-26 fiscal year, mainly due to the slowing growth of non-core businesses. Currently, the company is 8.8 times PE corresponding to FY2024, maintaining a target price of HK$95-103. It continues to maintain a “buy” rating from 27%-38% from the current room for growth.
Risk warning: Policy regulation brings business adjustments; systemic risks due to uncertainty about the global pandemic; risks of worsening competition in the e-commerce industry, etc.