Alibaba delivered upbeat 3QFY21 results, with revenue/Non GAAP net profit +37% YoY/+27% YoY, 3%/7% above consensus. CMR +20% YoY, 1% above our estimate. Cloud achieved positive adjusted EBITA and Cainiao was operating cash flow positive for the first time. However, regulation headwinds are yet over, as Ant Group and Anti-monopoly Investigation uncertainties remain. To factor in stepping up reinvestment and involving competition, we cut its earnings by 1%/5%/4% in FY21/22/23E, with new SOTP-based TP of HK$330.6 (from HK$349.4).
- 3QFY21 beat. 3QFY21 topline/bottom line grew 37%/27% YoY, 3%/7% above consensus. Adj. EBITA margin came out at 28%, mainly on better margin of Cainiao, cloud and innovations. Cloud achieved breakeven earlier than our expectation. We view this result as positive, but market concern lies on regulations uncertainty and margin dilution with ramp-up in reinvestment. Mgmt. stated that Ant Group is in the process of developing its rectification plan, and BABA are fully cooperating with the SAMR and conduct internal reviews under Anti-monopoly Investigation. New wave of COVID-19 posed limited impact on its business, per mgmt stated.
- Solid core commerce with stepping-up reinvestment. 3QFY21 CMR revenue grew 20% YoY, 1% above our estimate, for better monetization with feeds, enriched ads formats and livestreaming. Taobao Live delivered > RMB400bn GMV by Dec 2020. We expect its core commerce to see further upside from: 1) lower-tier cities penetration (Taobao Deals AAC >100mn); 2) livestreaming to stimulate engagement; and 3) expanding TAM from groceries (e.g. upcoming Taobao Maicai <淘宝买菜>). Mgmt prioritizes TAM expansion and topline growth than profitability, and reiterates its determination to reinvest for new initiatives (e.g. groceries, low-tier markets, cloud).
- Maintain BUY. The market is digesting the potential risks of merchants retention, competition landscape and margin dilution. In the short term, BABA might still see challenges from regulations and rectification, but we keep positive on its long-term momentum and expanding TAM with strong cloud & emerging business. We slightly trimmed its earnings by 1%/5%/4% in FY21/22/23E, and assign SOTP-based TP of HK$330.6 (27x FY22E P/E).
