BofA Securities has issued a research report reiterating its 'Buy' rating on Alibaba (09988, BABA.US), keeping its target price unchanged at HK$168 for the Hong Kong-listed shares and $172 for the US-listed shares.
The report forecasts that Alibaba's revenue for the first fiscal quarter ending June this year will increase by 8.8% year-on-year, aligning with market expectations. Strong AI demand is expected to drive a 45% year-on-year increase in cloud business revenue, compared to a 38% growth in the previous quarter. The cloud business margin is projected to improve from 9% to 11%, consistent with management guidance.
The bank anticipates that Alibaba's Customer Management Revenue (CMR) for the current quarter will decline by 7.7% year-on-year, reflecting a softer industry environment in the second quarter of this year. Overall EBITA is forecast to reach approximately RMB 26.2 billion, a 33% year-on-year decrease. Within this, the EBITA for China's e-commerce segment (excluding new retail) is expected to decline by 3.3% year-on-year, primarily due to continued improvements in operational efficiency and optimization of marketing expenses. Losses from the new retail segment are expected to narrow to around RMB 10 billion, compared to a loss of about RMB 18 billion in the previous quarter. Losses from other businesses are projected to narrow from RMB 21 billion to approximately RMB 17 billion.
BofA Securities believes the fiscal year 2027 will mark a critical turning point for Alibaba's profitability. Core e-commerce profits are expected to return to growth as new retail losses narrow significantly, providing sustainable cash flow to support cloud development and AI investments. The bank forecasts that overall adjusted EBITA will increase from about RMB 76 billion in fiscal 2026 to approximately RMB 103 billion in fiscal 2027. Revenue forecasts for fiscal years 2027 and 2028 are largely maintained, while profit forecasts for those years have been raised by up to 2%.
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