Alibaba Group Holding Ltd (BABA)

[TRUISM]

Alibaba: What to Expect from 4Q Earnings
By UOB KAY HIAN-April 18, 2017 2:11 a.m. ET
Click For Barrons Article


UOB Kay Hian expects 59% revenue increase on robust growth of its cloud and e-commerce businesses.



Alibaba (BABA) (USD111.98, Apr.18, 2017)

UOB Kay Hian maintains its Buy rating with a target price of USD130 a share.

Alibaba will be reporting its 4QFY17 and FY17 results in mid-May. China’s online retail sales growth accelerated to 37% in 1Q17 vs 31% year-on-year in 4Q16, beating our expectation.

This supports our continuously bullish view on the sector. We forecast 4QFY17 revenue to increase 59% yoy to RMB39 billion on robust growth of the core e-commerce and cloud businesses. We estimate non-GAAP net profit to grow 72% yoy to RMB13 billion with a non-GAAP net margin of 34%. Maintain BUY with a target price of US$130.00.

WHAT’S NEW

• Re-accelerating industry growth to support core e-commerce business expansion. According to the National Bureau of Statistics of China (NBS) China’s online retail sales grew 40% year-on-year in Mar 17 and 37% year-on-year in 1Q17 vs 31% year-on-year in 4Q16, beating our expectations. This supports our continuously bullish view on the sector. We also believe Alibaba’s Chinese retail advertising revenue will continue to grow strongly, driven by a higher click through rate and more pay-for-performance (P4P) advertisement products. We forecast Alibaba’s China’s e-commerce revenue to grow 42%/28% year-on-year in FY17/18.

• Big data and AI are key elements to maintain cloud business’s competitive strength. Alibaba announced its “NASA” project in March and introduced its “ET Medical Brain” and “ET Industrial Brain” aimed at democratising artificial intelligence (AI) technology in the healthcare and manufacturing sectors with an upgraded machine learning cloud platform. AliCloud is on track to reach its 1m paying customers target (3QFY17: 765,000 vs 3QFY16: 383,000). We forecast 99%/119%/105% year-on-year growth in cloud revenue in 4QFY17/FY17/FY18 respectively.

• Harvesting the fruits from digital entertainment in 2H17. According to the company, the number of paying members on its YouTu platform had reached 30m as of end-16 vs 30m for Baidu iQqiyi and 20m for Tencent Video. Alibaba has also announced plans for the online game arena as part of its digital entertainment expansion.

It has planned a RMB1b investment for IP and content acquisition as well as cooperation with game developers. We also expect more synergy between YouTu and Alibaba’s core commerce platforms via a unified ID across its ecosystem and expect narrowed losses with more content released in 2H17. We forecast revenue growth of 284%/100% year-on-year in FY17/18 for this segment.

• New retail initiative to consolidate online to offline resources. The company is still confident about its new retail strategy to build a new retail ecosystem that incorporates: a) a strong online advertising platform that offers great value to merchants; b) an in-depth combination of online e-commerce and offline stores; c) a modern logistics network; d) big data technology, and e) cloud computing. Benefiting from the Tmall platform, one of Alibaba’s offline partners Suning’s (002024.CH) 2016 online GMV (gross merchandizing volume) grew 60% year-on-year, while total revenue grew 10% year-on-year.



Blessings to All

TRUTH