Alibaba delivered strong 2QFY20 result, with revenue/Non GAAP net profit +40% YoY/+40% YoY, 2%/22% above consensus (3%/16% above our estimates). Core commerce maintained strong momentum, and market eyes on low-tier cites competition and upcoming “11.11” Festival. Maintain BUY with new TP up to US$229.8 (27x FY21E P/E).
- Another strong quarter with all-round beat. 2QFY20 revenue surged 40% YoY, 2%/3% above consensus/our estimates. Non-GAAP net profit grew 40% YoY, 22%/16% above consensus/our estimates. We think this result is well-anticipated, and consistent with our preview report. Looking ahead, we keep positive on its topline growth and margin trend, for solid core and improving cost efficiency.
- Core commerce: CMR +25% YoY; Eyes on upcoming “11.11”. 2QFY20 OMS revenue grew 25% YoY, in line with our estimates, in which Customer management rev (CMR)/ Commission grew 25%/24% YoY (vs. our estimate of +26%/22% YoY). Commission outperformance was driven by solid Tmall physical goods GMV (+26%), backed by strong FMCG and consumer electronics. Market focus lies on low-tier cities penetration and upcoming “11.11”. Despite competition, we keep confidence in BABA’s secular growth, backed by: 1) ample room for its user expansion and ARPU improvement in low-tier cities; and 2) more cross-selling opportunities and ecosystem synergies to unlock its growth potential.
- Positive on margin outlook. 2QFY20 total adj. EBITA margin was 27% (vs. 27.2% in 2QFY19, above our estimate of 26%), in which core commerce/Cloud/DME/ Innovations EBITA margin at 38%/-6%/-30%/-158%. Regarding market focus on 2HFY20E investment, Alibaba restated to reinvest the discretionary profit from marketplace-based business to gain shares, but still with manageable expenses and higher efficiency.
- Maintain BUY. Given upbeat 2QFY20, we raised our earnings by 2%/2% in FY20/21E, and lifted SOTP-based TP from US$224.1 to US$229.8 (27x FY21E P/E). We view Alibaba as our top pick, backed by solid earnings growth and reasonable valuation. Further potential catalysts: 1) upcoming “11.11” Festival; 2) dual listing in HK; and 3) ecosystem synergies.
