Analyst Note| Chelsey Tam |
Wide-moat Alibaba guided over CNY 930 billion in revenue in fiscal year 2022, higher than our previous expectation of CNY 905 billion, thus we raised fiscal-year 2022 revenue to CNY 925 billion. In fiscal 2022, all incremental profits compared with fiscal 2021 will be used to support its merchants and invest into new and strategic businesses in fiscal year 2022 as per management. We therefore expect adjusted EBITA to be flat with margin declining to 18.4% in fiscal 2022 from 23.8% in the year ago period. The areas of investments in descending order are community marketplace, Taobao deal, local consumer services, and Lazada. These investments will go into technology, merchant supports, user acquisition, user experience enhancement, improving supply chain, and merchandising for high frequency categories. We like management’s goal to increase annual active consumers in China by over 100 million versus 85 million achieved in the fiscal year 2021, which is one of the outcomes of the investments. We raised our five-year average annual GMV growth assumptions from 13% to 18% and revenue growth assumption from 16% to 18% to factor in the incremental growth from the investments. From 2023 to 2025, we continue to expect more EBITDA margin decline in these years at Alibaba compared with Factset consensus as of May 14. Alibaba’s fair value estimate has been maintained at USD 313 per ADS (HKD 303 per share) as we expect future growth will offset the costs of the investments. The shares are still undervalued in our view.