CHINA INTERNET : Feel the pulse: Investors’ key debating points

研报英文原文证据摘录

CHINA INTERNET : Feel the pulse: Investors’ key debating points

Investment case, valuation and risks

Alibaba (Outperform, Target Price HKD200)

Investment case

We have an Outperform rating on Alibaba. We believe Alibaba is the best proxy to

China AI development. Its AliCloud business is well position to monetise the growth of

AI spending from businesses and consumers. We expect AliCloud's revenue growth to

accelerate in FY27. In consumption, we believe FY26 will be a margin trough for

Alibaba's China Commerce segment, and are confident about future margin

improvement, earnings recovery and management's goal to achieve QC breakeven in

FY29.

Valuation methodology

We derive our target price using discounted cash flow (DCF) valuation methodology. Our

DCF inputs include a WACC of 7.8% and terminal growth rate of 2.5%.

Risks

To the upside:

1) Better-than-expected China-US relations; 2) Faster-than-expected AI

technology development; 3) Stronger-than-expected consumption growth in China; 4) A

more friendly regulatory environment; 5) Less intensified competition in local commerce;

and 6) More operational efficiency.

To the downside:

1) Weaker-than-expected China-US relations; 2) Slower-than-expected AI

technology development; 3) Weaker-than-expected consumption growth in China; 4) A

less friendly regulatory environment; 5) More intensified competition in local commerce;

and 6) Less operational efficiency

Alibaba ADR (Outperform, Target Price USD205)

We have an Outperform rating on Alibaba ADR. We believe Alibaba is the best proxy

to China AI development. Its AliCloud business is well position to monetise the growth

of AI spending from businesses and consumers. We expect AliCloud's revenue growth

to accelerate in FY27. In consumption, we believe FY26 will be margin trough for