UOB Kay Hian’s Julia Pan has maintained her “buy” rating on Alibaba with an unchanged target price of US$378 ($508.30), representing a 27.8% upside on the counter after the group posted strong 2QFY2021 results.
Revenue increased by 30% y-o-y to RMB155.1 billion ($31.5 billion) in 2QFY2021, and non-GAAP (or non-generally accepted accounting principles) net profit came in at RMB47.1 billion, up 44% y-o-y, beating the brokerage’s and consensus estimates by 25% and 23% respectively.
Non-GAAP earnings before interest, taxes, depreciation, and amortization (EBITDA) grew by 28% y-o-y. EBITDA margin was flattish at 31% y-o-y.
Core commerce EBITA margin dropped 3 percentage points y-o-y and q-o-q to 35%, missing expectations due to investment in new initiatives such as promotions-based investments in Taobao Deal and Taobao Live.
Pan pointed out annual active buyers grew 9.2% y-o-y to 757 million, while mobile monthly active users (MAU) grew 12.2% y-o-y to 881 million during 2QFY21.
She also added Tmall’s physical goods gross merchandise volume (GMV) increased 21% y-o-y, with the fast-moving consumer goods (FMCG) segment continuing to be the fastest growing category and as the apparel segment’s sales have recovered and now exceeds pre-Covid-19 levels.
Tmall’s Global GMV grew 37% y-o-y, while Taobao’s online physical goods GMV growth was in the high-teens y-o-y, driven by increased purchase frequency for value-for-money offerings.
Alibaba’s growth momentum for cloud business also continued, with cloud revenue increasing by 60% y-o-y and 21% q-o-q to RMB14.9 billion. Pan said this was primarily driven by the increase in revenue contribution from customers in the Internet, finance and retail industries.
The average spending of its A-share listed customers (accounting for 60% of total customers) grew by 45% y-o-y in Sep 2020, but EBITA margin narrowed to -1%, down from the 1QFY2021 figure of -3%. The company expects the cloud segment to be profitable for at least one quarter in 2HFY2021.
New retail revenue grew by 44% y-o-y to RMB26.1 billion. Moving forward, Alibaba will start to consolidate the performance of its newly-acquired business, Sun Art Retail, into the new retail segment. During the earnings call, Alibaba claimed that its FMCG was multiple times bigger than JD supermarket.
Pan believes the “recent knee-jerk reaction” from the heavy sell-down of the stock was due to the suspension of Ant Group’s initial public offering (IPO), which should “present a buying opportunity for investors.” The suspension comes amid heightened regulatory supervision from the regulator after Ant’s senior management talked with regulators on Monday.
UOB Kay Hian said they understood the latest drafted rules on “Governing Online Micro Financing” imposed a rule that requires online micro-lenders to fund at least 30% of self-funded syndicate loans. This means that Ant has to reduce its leverage in terms of its lending practices, which are currently 1-2% self-funded.
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She said management did not address analyst questions as to how much Alibaba’s GMV is related to Ant’s Huabei and Jiebei, and believes it will not have material impact on the group.
On the 11.11 sales, Alibaba achieved a total GMV of RMB268.4 billion during last year’s sales, representing 25.7% y-o-y growth.
She noted the promotions this year were slightly different from last year’s, as the number of promotion days had been extended to include 1 and 3 Nov rather than on 11 Nov itself.
Alibaba will also distribute up to RMB4 billion worth of cash rebates (in red packets) and promotional vouchers for up to 20 billion brands.
As such, she remains confident the total GMV this year will surpass last year’s, underpinned by better-than-expected consumption recovery.
At 1.41pm, shares of Alibaba traded at US$290.53, with a FY21 price to book ratio of 5.7 and dividend yield of 0%.
