Daiwa Reaffirms Buy Rating on Alibaba-W While Trimming Price Target to HK$184

Stock News03-20 11:18

Daiwa has released a research report indicating a reduction in its earnings per share forecast for Alibaba-W (09988) for fiscal years 2026 to 2028 by 6% to 15%. The firm reiterated its "Buy" rating, primarily based on third-quarter profits falling below expectations, and lowered its 12-month target price from HK$191 to HK$184, derived from a sum-of-the-parts valuation method. The bank's view on the company's long-term positioning in AI-driven cloud business remains unchanged, but it cautioned that further subsidies for user acquisition costs present a major downside risk.

The report noted that Alibaba's performance for the third quarter of fiscal 2026, ending last December, was below expectations, mainly due to disappointing revenue growth in its cloud business and the group's overall profitability. During the earnings call, management reaffirmed its medium-term goals, including achieving $100 billion in external AI and cloud business revenue within five years and projecting gross merchandise volume for its instant retail business to reach 1 trillion yuan by fiscal 2028, with overall profitability turning positive by fiscal 2029.

Daiwa believes that the AI and cloud business is sharpening its monetization focus. External AI and cloud revenue for the first 11 months of fiscal 2026, ending February this year, had already reached 100 billion yuan, with overseas markets contributing a high-single-digit percentage. With average daily token processing volume in March tripling compared to December last year, coupled with price increases for cloud products, the bank anticipates accelerated growth in external cloud business revenue for 2026.

Management did not provide a clear timetable for the IPO of T-Head but disclosed that its annualized revenue has reached 10 billion yuan, with over 60% of its chips supplied to external customers. The company expects to further scale operations between 2026 and 2027. Capital expenditure slightly decreased to 29 billion yuan last quarter, but Daiwa sees potential upside risk to the total capital expenditure budget of 380 billion yuan.

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