Key points of investment
CY24Q2 Taotian actively participated, and GMV continued to improve. The estimated revenue of CY24Q2 was 250.9 billion (YoY +7%), which slightly exceeded expectations, mainly because we believe that the GMV growth rate continues to improve. The estimated net profit of non-GAAP was 38.4 billion yuan (YoY -14%), which was basically in line with expectations, mainly due to continued negative growth of Aotian EBITA. FY25's non-GAAP net profit was assessed 12 times, with an overall valuation of HK$2050.2 billion, target price of HK$106, current price space of 35.2%, maintaining a “buy” rating.
Overall revenue slightly exceeded expectations, and profit was in line with expectations
We estimate that CY24Q2 (FY25Q1) Ali's revenue was 250.9 billion (YoY +7%), which slightly exceeded expectations, mainly because we believe that the GMV growth rate continues to improve. The estimated net profit of non-GAAP was 38.4 billion yuan (YoY -14%), which was basically in line with expectations, mainly due to continued negative growth of Aotian EBITA.
Taotian GMV continues to improve, and focus on the commercial release process
1) GMV: We expect CY24Q2 GMV to achieve high single-digit growth and perform well. a) Self-improvement: Since this year, Taotian GMV has shown an improvement trend. We believe that thanks mainly to the “10 billion subsidy” and “Amoy Factory” investment, the price gap with the main competitor products has narrowed. According to Yiguan data, during the “618” period, the growth rate of Taotian GMV reached 12%, and the performance was better than expected. b) Marginal improvement of competition: We have observed a slowdown in the growth rate of live e-commerce since this year. According to Yiguan data, the growth rate of Douyin e-commerce dropped to 26% during the “618” period. We believe that the slowdown in the growth rate of live e-commerce is mainly due to the peak of platform traffic and weak profitability of merchants, and some merchants have reduced their investment in live e-commerce platforms.
2) CMR: It is estimated that CMR increased 5% year over year. Since this year, Taotian's business has focused mainly on achieving a recovery in GMV growth. We expect the CMR growth rate to remain slower than the GMV growth rate in the second quarter, and it is estimated that CMR will increase by 5% year on year. However, we have observed that Taotian has recently strengthened its commercialization process, which is reflected in: a) “Full Site Promotion” will be launched in full. According to Tmall Express, the full website promotion will be launched in the near future. “All site promotion” will combine the sale of the platform's free traffic with paid traffic, which is conducive to increasing the platform's monetization rate. b) Increase part of the commission. Recently, we have observed that Taobao has begun to increase commission fees for registration promotions. As GMV continues to grow and monetization tools are promoted, it is expected that the CMR growth rate and GMV growth rate will narrow in the second half of the year. I am optimistic that the CMR growth rate will approach the GMV growth rate.
3) EBITA: Negative growth is expected to continue. Due to Taotian's investment in “10 billion subsidies” and “Amoy Factory,” we estimate the year-on-year growth rate of Taotian EBITA by -3%. We believe that the e-commerce business model has high operating leverage. With the CMR growth rate improving in the second half of the year, we believe that Taotian EBITA is expected to return to positive growth.
AIDC maintains rapid growth, and the cloud grows steadily
1) AIDC: Benefiting from the boom in cross-border e-commerce, we expect AIDC (Ali International Digital Commerce) revenue to continue its rapid growth trend, with 24Q2 revenue reaching 29.5 billion yuan (YoY +33%), and losses are expected to remain basically flat from month to month. 2) Cloud: The estimated revenue reached 26.4 billion yuan (YoY +5%), and the profit level is expected to remain stable from month to month.
Investment advice
Undervaluation, high dividend repurchase rates, and the main business continues to improve. According to the company announcement, in the first half of '24, the company spent 10.6 billion dollars on repurchases, accounting for 5.5% of the latest market capitalization. We estimate that FY25/26/27 achieved revenue of 1032.9/1143.8/1251.6 billion yuan and non-GAAP net profit of 157.2/206.7/239.1 billion yuan, corresponding to the current stock price PE of 8.9/6.7/5.8. We valued FY25 non-GAAP net profit 12 times, with an overall valuation of HK$2050.2 billion (HKD: RMB exchange rate of 0.92), target price of HK$106, current price space of 35.2%, maintaining a “buy” rating.
Risk warning
1) Overall consumption performance fell short of expectations; 2) Industry competition exceeded expectations; 3) Regulatory strength exceeded expectations.