Overall performance: Revenue grew steadily, with significant cost reduction and efficiency gains in businesses other than Taotian. With 2QFY2025, the company achieved revenue of 236.5 billion yuan, a year-on-year increase of 5%, and a steady growth rate. Among them, international digital business groups, cloud business, local lifestyle groups, and Cainiao Group are clearly driving the growth rate, while the growth rate of Aotian Group and Dawen Entertainment is relatively lackluster. The company's non-GAAP net profit for the quarter was 36.5 billion yuan, down 9% year on year, and the non-GAAP net profit margin was 15%; adjusted EBITA fell 5% year on year to 40.6 billion yuan, and adjusted eBITA profit margin fell 2 pct year on year, mainly due to increased investment in domestic e-commerce business. The company repurchased $4.1 billion (52 million ADs) this quarter. After considering shares issued under the employee stock ownership plan, the repurchase plan reduced tradable shares by 2.1%. Currently, the share repurchase plan is still worth 22 billion US dollars (valid until March 2027).

Taotian Group: Revenue growth is lackluster, and the company will continue to invest in merchants and users. Taotian Group's revenue for the quarter was +1% to 99 billion yuan, with retail customer management revenue +2% YoY, direct management and other revenue -5% YoY, and wholesale business +18% YoY. Taotian's EBITA profit margin decreased by 3.2pct to 45% this quarter, and profit yoy -5%, mainly due to continued investment in user experience. It is worth mentioning that the number of 88 VIP members exceeded 47 million this quarter, an increase of 5 million over the previous quarter.

Cloud computing: AI revenue is growing rapidly, leading to a significant increase in business profit margins. Cloud business revenue for the quarter was +7% year-on-year to 29.6 billion yuan, and the adjusted EBITA margin increased from 5% to 9%. Public cloud business revenue maintained double-digit growth this quarter. Among them, AI-related revenue achieved three-digit growth for five consecutive quarters, and the rapid growth trend is expected to continue. The increase in adjusted EBITA profit margins is mainly due to strong demand for AI products and solutions, and the company continues to increase investment in cloud infrastructure to better meet customer needs.

Investment advice: Maintain an “better than the market” rating. The company invests heavily in core business, and the non-core business continues to reduce costs and increase efficiency. We adjusted the company's FY2025-FY2027 revenue forecast to 992/1088.6/1193.1 billion yuan, with an adjustment of -0.5%/-0.3%/-0.5%, which mainly reflects that it will take time for Taotian's share and revenue to accelerate, and some non-core businesses will continue to shrink; adjust the company's FY2025-FY2027 net profit forecast to 148.9/163.2/185.5 billion yuan, the adjustment range is- 0.2%/-5.0%/1.8%, mainly reflecting that Taotian may still be in the investment period in the past two years. Currently, the company is 10 times the PE corresponding to FY 2025, maintaining a target price of HK$120-127, 38%-46% from the current room for growth, and continues to maintain a “superior to the market” rating.

Risk warning: Policy regulation brings business adjustments; risk of worsening competition in the e-commerce industry, etc.