LB Select
2022.08.05 11:13

Analysts on Alibaba Q1 earning: Decent Quarter, Efficiency Gain

Daiwa Capital believes Alibaba is still under-owned by investors, and its share price will benefit in 2H22E as the proxy of China’s consumption recovery.

Alibaba reported fiscal first-quarter earnings on Thursday. The result beat Wall Street expectation, but the Chinese e-commerce giant saw its first flat revenue growth in history.

Here are some Wall Street takeaways:

BOC International: Steady recovery from the bottom

  • 1QFY23 revenue reached RMB205.6bn, 0.8% higher than consensus, and non-GAAP net income beat consensus by 8% mainly thanks to narrower loss from TCC and TB Deal.
  • Further recovery in 2nd half can be expected despite the weak consumer sentiment and macro condition. We expect the company to continue its efforts in improving user shopping experience and optimising operating efficiency and cost structure.
  • Valuation is expected to be supported by improved earnings visibility.

Reiterate BUY rating with lower target price at US$142 as we price in lower valuation for Ant Financial, equivalent to HK$139 for H-share.

Daiwa Capital: earnings upside led by efficiency gain

A positive surprise of Alibaba’s 1Q FY23 results was better-than-expected margin across all segments in core commerce, although cloud revenue missed our estimates.

We believe the market under-appreciates the likely earnings upside on company’s likely stringent cost control efforts in the coming quarters.

Alibaba is still under-owned by investors, and its share price will benefit in 2H22E as the proxy of China’s consumption recovery, in our view. We believe the approval of its dual-primary listing in Hong Kong, positive news on Ant Group and share buybacks are the key catalysts for the stock.

We are more positive on Alibaba’s FY23-24E profitability given its cost control efforts in Taocaicai and Taobal Deals in FY23E.

Haitong: A decent quarter with decent recovery; expectation set to a comfortable level

Maintain Outperform rating, with TP unchanged at $136.

Margin improvement to be steady on disciplined investment and improved competition landscape in certain areas. The 19% beat in June-Q’s EBITA was mainly attributable to the better-than-estimated China Commerce EBITA and much better than expected loss ratio of LCS.

Going forward, we expect the efficiency in TCC, Taobao deals and Frepshippo investment to continue to improve, esp. entering into Dec.Q, as recall TCC began its investment in last April and scaled up in June-Q, with peak cost in Dec-Q; meanwhile, LCS to enjoy a continued UE improvement on a YoY basis on lowered industry growth and more benign price related competitive landscape.

Therefore, we expect the EBITA margin on group level continue to narrow YoY decline in Sept-Q, and may even embrace a reflection point somewhere in Q3/Q4.

While managing toned conservative, to set expectation to a comfortable level.

  • the declining consumption % as of disposable income and lingering macro uncertainty;
  • Company toned conservative regarding whether to extrapolate Jul recovery pattern into the rest of Sept-Q;
  • Margin uncertainty thereby hinted due to topline growth invisibility at current point.

However, we read it as the company’s being more conservative compared with peers to play safe, and that could make chances higher to beat in upcoming results given the same page of the economic status evolvement. Meanwhile, some investors are over-concerned about the regulation risks that BABA may have, creating pressure for its share price under current stage, which could also act as an upside catalyst if these concerns can be lifted partly in the future.

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