Key investment points

Revenue growth was slightly lower than expected, and profit levels declined year over year: in FY2025 Q2, the company achieved operating income of 236.5 billion yuan (yoy +5%), lower than Bloomberg's agreed forecast of 239.4 billion yuan; net profit to mother under non-GAAP was 36.5 billion yuan (yoy -9%), higher than Bloomberg's agreed estimate of 35.62 billion yuan.

Taotian GMV grew healthily, and EBITA margin declined: Taotian Group's revenue increased 1% year over year to RMB 98.994 billion this quarter, and customer management revenue increased 2% year over year. The number of 88VIP members exceeded 46 million, and GMV increased, mainly due to a double-digit increase in order volume, driven by an increase in the frequency of purchases, partly offset by a decrease in average order amount. Taotian's EBITA margin fell 3.17pct year-on-year to 45.04%, indicating an increase in the company's investment.

Loss reduction is progressing positively, and investment in international digital commerce has increased: the EBITA margin for FY25Q2 Taotian, International Digital Commerce, Local Life, Cainiao, Alibaba Smart Cloud, Big Entertainment, and other businesses was 45.04%, -9.17%, -2.21%, 0.22%, 8.99%, -3.13%, -3.03%, year-on-year changes of -3.17, -7.6%, 14.26, -3.75, 3.89, 0.3, -0.04pct.

The strategic investment paid off. Many businesses grew well: FY25Q2 international digital commercial revenue exceeded expectations, Choice grew strongly, and unit economic efficiency improved month-on-month. Significant losses in the local lifestyle business continued to narrow, and orders from Gaode and Hungry continued to grow. Alibaba Cloud's public cloud products grew by double digits, and AI-related products achieved five consecutive quarters of three-digit year-on-year growth.

Profit forecast and investment rating: Considering that investment in Taotian's business and international business remains at a high level. At a time when GMV's growth exceeds expectations, we believe that FY2025Q1's overall eBitamarin is still recovering. Therefore, the profit forecast for FY2025/FY2026/FY2027 EPS of 8.09/8.76/9.48 was maintained, and the corresponding PE (non-GAAP) was 10.0/9.3/8.6 times (HKD/RMB = 0.93, November 15, 2024). Maintaining a “buy” rating considering the company's GMV growth and the acceleration of the monetization process, as well as the company's continued repurchase dividends.

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.