Alibaba delivered solid 2QFY21 results, with revenue/Non GAAP net profit +30% YoY/+44% YoY, 0%/23% above consensus. CMR +20% YoY, in line with our estimate. We reiterate our confidence on BABA’s secular growth, backed by livestreaming initiatives, Taobao deals penetration and cloud opportunity. We slightly raised its earnings by 4%/5%/5% in FY21/22/23E for Sun Art consolidation and better margin of emerging business, with TP of HK$349.4 (from HK$345.0). Valuation at 24x FY22E P/E is not demanding, and we expect further catalysts to come (e.g. cloud quarterly breakeven, “11.11”).
- 2QFY21 beat on margin. 2QFY21 topline/bottom line grew 30%/44% YoY, 0%/23% above consensus. Adj. EBITA margin came out at 27% (vs. our estimate of 26%), mainly on narrowing loss margin of local service, Cainiao, DME and cloud. Market concern lies on its moderate Tmall GMV (+21% YoY) and core commerce EBITA margin decline (35%, -3ppts YoY, in line with our estimate). We view it as soft seasonality and strategic investment in Taobao deal & Juhuasuan user acquisition, and we suggest to move into 3QFY21E with eye-catching 11.11. Moreover, strong Cloud (topline +60% YoY, adj. EBITA margin narrowing to -1%) and Cainiao rev acceleration strengthened its breakeven insights.
- Solid core commerce, and eyes on “11.11”. 2QFY21 CMR grew 20% YoY, in line with our estimate. Taobao online physical goods GMV saw high-teens yoy growth in 2QFY21. Taobao Live impressed us, with > RMB350bn GMV for 12-m ended on 30 Sep 2020. We expect higher ads performance and stronger engagement ahead, boosted by upgraded model, new brand incubating and enriched ads format, but it would take some time to see meaningful rev contribution. Looking ahead, we are bullish on its 11.11 momentum, backed by: 1) livestreaming to stimulate engagement; 2) prepayment features and festival extension (two periods) to give SMEs more exposure; and 3) enhanced logistics.
- Maintain BUY. We think BABA is well positioned to capture online consumption recovery and long-term benefit from structural opportunities. Given Sun Art consolidation and better margin of emerging business, we slightly raised its earnings by 4%/5%/5% in FY21/22/23E, with SOTP-based TP of HK$349.4 (31x FY22E P/E).
