Goldman Sachs released a Research Report stating a 'Buy' rating for Alibaba-W (09988), with a Target Price of $134/131 HKD. On January 1, Alibaba announced the sale of its entire stake in its non-wholly-owned subsidiary SUNART RETAIL (06808), with expected maximum total proceeds of 12.298 billion HKD (1.75 HKD per share, approximately 1.6 billion USD), subject to approval from the State Administration for Market Regulation (SAMR) and other conditions. The firm believes that the company's announced divestiture of non-core offline retail assets aligns with management's continued focus on core businesses (namely, E-Commerce and cloud business) and enhancing shareholder returns.

The company believes this sale represents an opportunity to monetize non-core assets to better focus on core business and improve shareholder returns, while also anticipating an approximate accounting loss of 13.2 billion RMB (approximately 1.8 billion USD) after the transaction is completed. This deal follows Alibaba's earlier announcement on December 17, 2024, about the sale of Silver, marking the second significant divestiture of non-core assets, with expected total proceeds of 7.4 billion RMB (approximately 1 billion USD) and an anticipated accounting loss of approximately 9.3 billion RMB (approximately 1.3 billion USD), dependent on the fulfillment of antitrust review and other customary closing conditions by regulatory authorities.

Goldman Sachs stated that while the asset sale may incur accounting disposal losses upon completion, the sale of these two key offline retail businesses fits the company's ongoing focus on E-Commerce and believes these transactions can generate returns for further Shareholder return policies, including buybacks and dividends. In the bank's SOTP valuation, these two assets are negligible. In terms of profit composition, the businesses of SUNART and Silver Tai are recorded in Alibaba's "Other" segment, contributing little to the group's profit. According to SUNART RETAIL's publicly disclosed financial data, during the period from April to September 2024, SUNART RETAIL contributed 7% to Alibaba's revenue, but its contribution to Alibaba Group's profit was less than 0.3%.

Given Alibaba's weak stock price (falling 5% since the fiscal Q2 2025 earnings report, consistent with the KWEB Index), the firm indicated that investors remain focused on the gap in Alibaba's GMV growth. The firm believes that the company is executing a user-centric strategy, driving stable yields through Software service fees and advertising technology upgrades, and expects a stabilization/reversal of Taobao and Tmall's profitability beginning in the March quarter of 2025. Furthermore, the firm anticipates that ongoing shareholder return policies and healthy cloud business growth/profitability will provide space for multiples to recover, provided that revenue growth resumes and ESP shows a turning point.

Main risks: (1) Lower than expected GMV growth due to macro/competition; (2) The monetization speed of China's Retail Trade business is slower than anticipated; (3) The execution strength of key strategic investments is weaker than expected; (4) Slowing cloud revenue growth.