Forecast of main financial indicators: We expect Alibaba's FY2025Q1 (corresponding to the natural year 2024Q2) to achieve total revenue of 249.4 billion yuan (YoY +7%, QoQ +12%), adjusted EBITA fell 11% year-on-year to 40.5 billion yuan, and the adjusted EBITA margin was 16%; of these, Taotian Group expected revenue of 120 billion yuan (YoY +4%, QoQ +29%), and Taotian Group's adjusted EBITA margin was 41%; Alibaba Digital Business Group's estimated revenue is 29.6 billion yuan (YoY +34%, QoQ +8%); Alibaba Digital Business Group's adjusted EBITA margin is -13%; Cloud Intelligence Group's estimated revenue is 26.2 billion yuan (YoY +4%, QoQ +2%), and Cloud Intelligence Group's adjusted EBITA margin is 2%.

Taotian Group: Improved user experience and low price strategy are beginning to show results, and Taotian Group's GMV growth rate is gradually being restored. We expect FY2025Q1 Taotian Group's revenue to increase 4% to 120 billion yuan year on year, of which FY2025Q1 China's retail sales revenue increased 3% year on year to 113.5 billion yuan, mainly due to 1) good online consumption performance and continued promotion of the platform's low price strategy. We expect FY2025Q1 Taotian GMV to increase 9% year over year, further narrowing the gap with the growth rate of online retail sales of physical products; 2) Considering that the increase in Taobao's GMV share is dragging down the overall monetization rate, and advertising tools are still gradually penetrating across the website. We expect FY2025Q1 client management revenue (including commissions) to increase 4% year over year to 82.8 billion yuan. At the same time, the platform continues to increase investment in price power, consumer experience, and AI applications. We expect the adjusted EBITA of FY2025Q1 to be 48.6 billion yuan, and the adjusted EBITA margin will be 41%.

Ali International Digital Business Group: The business of various international business platforms has maintained strong growth. We expect the overall revenue of Alibaba Digital Business Group FY2025Q1 to increase 34% year-on-year to 29.6 billion yuan, of which 1) the international retail business achieved revenue of 24.2 billion yuan (YoY +41%), mainly driven by the strong growth of AIDC's retail platforms. Among them, AliExpress benefited from strong growth in AChoice's business. As of April 2024, Choice orders accounted for 70% of AliExpress's total orders, and order volume continued to grow rapidly; 2) International wholesale business achieved rapid growth; 2) International wholesale business achieved rapid growth Revenue of 5.5 billion yuan (YoY +10%), continued to be stable. Overall, the company's increased investment in cross-border business may drive the loss margin of the international business sector to increase. We expect the adjusted EBITA of FY2025Q1 Alibaba International Digital Business Group will be -3.8 billion yuan, and the adjusted EBITA margin will be -13%.

Cloud Intelligence Group: Revenue is under pressure in the short term, and the strategy focuses on public cloud and improving profitability. We expect FY2025Q1 Cloud Intelligence Group's revenue to increase 4% year-on-year to 26.2 billion yuan, mainly due to the reduction in cloud product prices and AI product revenue generation. The company's strategy focuses on public cloud, and at the same time continuously improves revenue quality by reducing low-profit margin projects to offset the impact of price reductions on public cloud products to a certain extent. We expect FY2025Q1 Cloud Intelligence Group's adjusted EBITA to be 0.5 billion yuan, and the adjusted EBITA margin is 2%.

The company expanded its share repurchase plan and continued to strengthen shareholder returns: Since 2021, Alibaba has continued to strengthen its repurchase efforts. The cumulative repurchase amount for the 2024 fiscal year was 12.5 billion US dollars, and the 2024Q 2 purchase amount reached 5.8 billion US dollars. As of June 30, 2024, the share repurchase plan still has a repurchase limit of $26.1 billion, which is valid until March 2027. The company continues to strengthen shareholder returns, which is expected to further improve sentiment.

Profit forecast and investment rating: Considering the gradual recovery of the company's revenue growth rate, we have adjusted the profit forecast. We expect the company's FY2025-2027 revenue to be 1018.4/1131.2/1256.3 billion yuan respectively, net profit to mother of 87/106.4/121 billion yuan, and non-GAAP net profit to mother of 166.7/196.8/220.8 billion yuan, respectively. The corresponding diluted EPS is 4.4/ 5.3/6.1 yuan, corresponding P/E is 16.7x/13.7x/12.0x, and the corresponding non-GAAP P/E is 9.1x/7.7x/6.9x; according to the SOTP valuation method, we gave Alibaba a total target market value of 2127.1 billion yuan for fiscal year 2025, corresponding to a target price of 110 yuan/HK$118, maintaining a “buy” rating.

Risk warning: Macroeconomic growth falls short of expectations; risk of policy supervision and valuation adjustments in the Internet industry; increased market competition; industry growth falls short of expectations; excessive diversification of business and insufficient organizational coordination; forward-looking performance forecasts are for reference only.