Key points of investment
Incident: In April 2021, in accordance with the Anti-Monopoly Law, the China General Administration of Market Regulation imposed administrative penalties on Alibaba Group's “choose one of two” merchants on domestic online retail platforms, and requested the company to comprehensively rectify and submit self-inspection compliance reports to the General Administration of Market Regulation for 3 consecutive years.
On August 30, 2024, the General Administration of Market Regulation issued a notice announcing that Alibaba Group has completed a three-year rectification, pointing out that the compliance and rectification work has achieved good results and will guide the company to continue to standardize operations in the future.
Regulatory evaluation terms were positive, and industry and company policy risks were significantly reduced. Compared with previous intensive discussions and surveys on platforms such as Ali and Meituan, three years later, the General Administration of Market Regulation assessed that “the online retail market environment has improved, and the platform's economic development quality and business environment have continued to be optimized.” Furthermore, the announcement clearly expressed support for the company, stating that regulators will further improve the quality and efficiency of the company's compliance and “provide a solid guarantee for building world-class enterprises and enhancing international competitiveness.” Based on the positive color of the term, we believe that the regulatory risks of the industry and companies have been reduced across the board, which will help boost market confidence and form valuation catalysts.
Improving service is still the main theme, and we look forward to an increase in Taotian's fundamentals. We believe that the implementation of the monopoly will release some of the valuation pressure, and investors will pay more attention to the fundamental situation. The network effect of e-commerce platforms comes from both people and goods. Anti-monopoly laws force companies to improve the level of merchant service and enhance the company's long-term competitiveness. In the second half of this year, Alibaba announced the exemption of basic technical service fees for Tmall merchants and the full launch of the fully hosted advertising tool “Full Site Promotion” to help merchants get started quickly and increase ROI.
We expect that Taotian's CMR revenue will benefit from the increase in overall promotion penetration rate and drive EPS growth.
Profit forecast and investment rating: Based on the further decline in regulatory risk, we maintain the company's earnings forecast of 8.00/8.67 yuan for the 2025/2026 fiscal year, and expect EPS of 9.38 yuan for 2027 and 9.36/8.64/7.98 for the 2025-2027 fiscal year (based on the exchange rate of HKD/RMB 0.91 on 2024/8/30). The company pays great attention to improving the efficiency of various business sectors. Although large-scale investment affects short-term performance, it helps to build long-term barriers. Taking into account the company's business growth, competitive advantages and barriers, we believe that the company's current valuation level has strong investment value and maintains the company's “buy” rating.
Risk warning: Competition in the e-commerce industry is intensifying, user retention rates fall short of expectations, market supervision risks, and risk of changes in core management.