CICC released a research report stating that they are maintaining the "outperform" rating. Taking into account the release of this year's bidding demand for multiple units and advanced maintenance, the full-year profit forecast is raised by 3% to 13.01 billion RMB, and the profit forecast for 2025 is maintained. Based on the upward revision of profit and the optimistic outlook for the demand for multiple units, the H-share target price is raised by 18% to HKD 6. The report states that the company's performance in the first half of the year exceeded the bank's expectations. Looking ahead, the bank believes that with the continuous increase in railway passenger traffic, the increase in the utilization rate and the extended service life of multiple units, the demand for multiple units and advanced maintenance is expected to be further released, benefiting the company's revenue and profit growth. $BABA-W (09988.HK)$ "Outperform" rating, with unchanged revenue and profit forecasts, and a target price of HKD 109. The bank sees that after organizational changes and strategic choices, Alibaba's core business market share stabilizes, other businesses are reducing losses beyond expectations, coupled with shareholder returns and entry into the Hong Kong stock connect program, optimistic about Alibaba's future performance.
CICC's main points are as follows:
Organizational changes first, and advancing strategic trade-offs.
In March 2023, Alibaba promoted organizational changes aimed at enhancing business flexibility and agility to better adapt to the new macro environment and competitive situation. From a strategic perspective, Alibaba dares to subtract: focusing on core business, consumers, Taobao, and public cloud. The bank believes that this strategy reflects the company's positive response to the current environment, breaking away from path dependence, and adhering to long-term correct actions.
Positive progress in core business, expected to have a significant catalyst from 2HFY25 onwards, and continued loss reduction in other businesses:
1) After the Taotian Group implemented the 'user-first' strategy, the bank observed a series of improvements in traffic distribution, merchant and product evaluations, membership system, and user services, combined with the slowdown in Douyin e-commerce growth, stabilizing Alibaba's e-commerce market share; with the use of new software technology service fees and advertising product investments, the bank expects customer management revenue to achieve 10% year-on-year growth starting from 4Q24.
After Yun Asia Vets Group adopted a focus on public cloud strategy, the industry believes that it is expected to achieve double-digit year-on-year revenue growth in 2HFY25. This is mainly due to the positive pricing strategy, the optimization of product structure for private cloud and hybrid cloud nearing completion, as well as the contribution of incremental demand for AI. With the increase in the proportion of public cloud, profitability is also expected to improve.
Significant reduction in losses for local life, large entertainment, and other businesses. The company states that these businesses prioritize commercialization and are expected to achieve a balance between profit and loss in the next 1-2 years. The industry estimates that these business adjustments in FY25 are expected to reduce losses by more than 12 billion yuan, improving the group's ROIC.
Increase shareholder stock-based incentive intensity, and the dual primary listing is expected to catalyze entry into the Hong Kong Stock Connect.
Since FY24, Alibaba has significantly increased the shareholder stock-based incentive intensity. The industry predicts that Alibaba's net shareholder return rate after deducting stock-based incentives in 24 years is expected to exceed 8%, and it is expected to maintain a high shareholder return rate in the next 2-3 years. In addition, after Alibaba completes the dual primary listing, it is expected to enter the Hong Kong Stock Connect. The industry calculates that the long-term potential incremental southbound funds could exceed 130 billion Hong Kong dollars.
Risks: Macroeconomic consumer uncertainty; regulatory policy risks; intensified e-commerce competition; commercialization progress falling short of expectations; progress in joining the Hong Kong Stock Connect falling short of expectations.