Introduction to this report:
618's performance is steady, and sitewide promotion may improve the monetization rate. Shareholder returns continue to be enhanced. Hong Kong's dual major listing is imminent, and it can be included in Hong Kong Stock Connect as soon as September.
Key points of investment:
Profit forecast and investment advice: We slightly adjusted the company's FY2025E-FY2027E revenue to 1017/1100.8/1168.9 billion yuan (RMB, same below, previous values were 1027.8/1118.2/1187 billion yuan, respectively) and adjusted net profit to 152/169/180.4 billion yuan (previous values were 153.5/171.5/183.1 billion yuan, respectively). Alibaba Hong Kong Stock (9988.HK) was given a target price of 94 HKD for FY2025, maintaining the “Overweight” rating.
The growth gap between CMR and GMV may narrow further, and we expect an inflection point in the monetization rate. We expect FY25 Q1 Taotian Group's GMV to be +5.5% year-on-year, mainly driven by double-digit year-on-year GMV growth during the 618 promotion period. Global promotion will become an important tool to increase the monetization rate. During the 618 period, the first batch of 130 closed beta merchants used Ali Mama's full-site promotion to achieve sales exceeding 10 million. GMV of more than 1.5 million products increased by an average of more than 65% month-on-month over 7 days after promotion and investment, and over 300 individual products sold over 1 million. We expect FY25 Q1 Taotian CMR revenue to be +3% year-on-year, and there is still a growth gap with GMV; in the future, with the iteration of the site-wide push algorithm, expansion of coverage of merchants, and the monetization rate or current inflection point, the CMR revenue growth gap or GMV narrows further.
The June quarter repurchases reached a record high, and may be catalyzed by the Hong Kong Stock Exchange. The company further increased shareholder returns and invested a total of 5.8 billion US dollars (the highest in history) to repurchase 0.613 billion common shares (approximately 77 million ADs) in the June quarter. The previous March quarter repurchase amount was 4.8 billion US dollars. Currently, the company still has a $26.1 billion repurchase limit (valid until March 2027). According to Ali's official announcement, the dual main listing in Hong Kong continues to be promoted, and the transition is expected to be completed by the end of August 2024. If the conversion is completed on time, it can catch up with the September Hang Seng comprehensive adjustment time window and be included in Hong Kong Stock Connect in September as soon as September.
International businesses may see improvements in monetization rates, and AI helps improve the quality of cloud revenue. We expect FY25 Q1 to generate revenue of 252.1 billion yuan (RMB, same below), +8% year-on-year, adjusted net profit of 37.4 billion yuan, and a net profit margin of 14.8%. Among them: 1) Taotian Group's revenue was +3% year-on-year to 118.2 billion yuan.
2) International commercial revenue was +30% to 28.9 billion yuan. AliExpress reached a cooperation with Brazilian retailer Magalu in June, and the two sides settled in. Ali will charge commissions for AliExpress products sold on the Magalu market, and the monetization rate may improve. 3) Cloud intelligence revenue was +5% year-on-year to 26.4 billion yuan. After the Tongyi Qianwen series model was drastically reduced in price in May, a large number of customers directly used the big model on Alibaba Cloud. In the past 2 months, the number of customers serving enterprises by Bailian grew from 0.09 million to 0.23 million yuan.
Risk warning: Industry competition intensifies; consumption recovery falls short of expectations; e-commerce price war escalates; reform progress and results fall short of expectations.