Xiaomo: Lowering Alibaba-W (09988) target price to HK$195 to maintain “overholding” rating and downgraded earnings forecast per share for the 2027 and 2028 fiscal years

The Zhitong Finance App learned that J.P. Morgan Chase released a research report stating that it will lower the target price of Alibaba-W (09988) Hong Kong stock from HK$205 to HK$195, maintaining the “gain” rating. Prior to the announcement of the company's September quarterly results, the bank lowered its 2027 and 2028 non-GAAP earnings forecasts per share by 9% and 10%, respectively, while also raising its 2027 non-GAAP EBITDA forecast by 8%, and lowering its 2028 non-GAAP EBITDA forecast by 4%.

J.P. Morgan believes that Alibaba's cloud business EBITA will surpass AI model and application business losses for the first time in the December quarter, so that cloud business growth will begin to contribute to the group's profits. The longer infrastructure construction period extended the room for growth, but it also led to depreciation before capacity utilization increased, cloud revenue in the first year delayed due to production capacity to be put into operation, and a decline in interest income after switching cash to computing power.

The bank pointed out that depreciation is a real cost, and shareholder returns depend on asset returns, financing costs, and the economic benefits that Alibaba retains. The bank's predictions for Alibaba's non-GAAP EBITDA for the 2027 and 2028 fiscal years are still 14% and 30% higher than market expectations, respectively.

The bank expects AI Labs and application businesses to lose about RMB 10 billion in the September quarter, cloud revenue up 53% year-on-year, and the EBITA profit margin to rise further to 12.4%. The total EBITA for the cloud business and AI business is expected to be revised in the December quarter, reflecting the acceleration in the year-on-year growth rate of cloud revenue to more than 55%, and the profit margin of the cloud business of more than 15%.

On the e-commerce side, the bank expects customer management revenue (CMR) to increase by about 1% year on year, Taobao and Tmall Group's EBITA remain flat year on year, with immediate retail losses of about RMB 9.2 billion.