Bank of America Securities has issued a research report reiterating its "Buy" rating on Alibaba (09988, BABA.US), maintaining its price targets of 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 anticipated to drive a 45% year-on-year increase in cloud business revenue, compared to a 38% rise in the previous quarter. The cloud business's profit margin is expected to improve from 9% to 11%, consistent with management guidance.
The bank projects that Alibaba's Customer Management Revenue (CMR) for the 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 decrease of 33% year-on-year.
Within this, the EBITA for China's e-commerce segment (excluding New Retail) is expected to fall 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 approximately RMB 18 billion in the previous quarter. Losses from other business segments are projected to narrow from RMB 21 billion to about RMB 17 billion.
Bank of America Securities believes that fiscal year 2027 will mark a critical turning point for Alibaba's profitability. The core e-commerce profit is expected to return to growth as New Retail losses significantly narrow, providing sustainable cash flow to support cloud development and AI investments.
The bank forecasts that overall adjusted EBITA will increase from approximately RMB 76 billion in fiscal 2026 to around RMB 103 billion in fiscal 2027. Revenue forecasts for fiscal 2027 and 2028 remain largely unchanged, while profit forecasts for those years have been raised by up to 2%.
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