We expect Alibaba to deliver solid 1QFY21E in mid-Aug, with revenue/Non GAAP net profit +30% YoY/+16% YoY, 1%/1% above consensus. NBS data showed strong momentum of online sales in Jun (+26% YoY, vs. +22% in May). We think BABA’s recovery pace in domestic market would trend better with OMS up 20% YoY in 1QFY20E, backed by upbeat “618” performance and share regain. We initiate coverage on Alibaba’s H-share with BUY rating, at TP of HK$290. Waiting for more catalysts (potential stock connect & Ant Financial listing) to unlock its valuation.
Expecting upbeat 1QFY21E. We expect BABA’s revenue/Non GAAP net profit +30% YoY/+16% YoY in 1QFY21E, 1%/1% above consensus. By segment, we estimate ecommerce/ Cloud/ DME/ new initiatives to grow at 30%/58%/4%/59% YoY, with total non-GAAP EBITA margin at 27%. With better-than-expected ecommerce recovery and 618 promotions, we expect its core commerce to perform well and cloud & Ant business is still undervalued.
618 initiatives to stimulate ecommerce growth. We expect core ecommerce rev up 30% YoY in 1QFY20E, with OMS +20% YoY (in which CMR/commission +22%/17%). Noted that China online retail sales of goods accelerated to 25.7% YoY in Jun (vs. +22% /+16% YoY in May/Apr), above market expectation, according to NBS data. Ecommerce penetration rate climbed to 25.2%, +0.9ppts QoQ. We expect BABA to strengthen its share in Jun quarter, backed by live streaming initiatives, 618 promotions, and government subsidies. Moreover, Hema mini achieved breakeven recently with beneficiary of COVID-19, a positive signal for new retail margin.
More catalysts to come in 2H20E. We forecast BABA’s cloud to surge 58% YoY in 1QFY20E, with long-term beneficiary from COVID-19. Given its higher growth and TAM, we think AliCloud is still undervalued (8x FY22E P/S) at 30% discount of AWS. On top of that, we believe potential stock connect & Ant Financial listing ahead would unlock its group valuation.
Maintain BUY. We think BABA is well positioned to capture online consumption recovery and long term benefit from structural opportunities. We initiate coverage on Alibaba’s H-share with BUY rating, at TP of HK$290 (26.5x FY22E P/E).
