Alibaba Is Top Pick, Analyst Boosts Estimates Expecting Growth Recovery And Easing Logistics From Fiscal 24

Benchmark analyst Fawne Jiang reiterated Buy on Alibaba Group Holding Limited (NYSE: BABA) with a $180 price target.

Jiang views BABA stock as a top pick for a big-cap China value play in 2023.

Fundamentally, while retail and e-commerce growth remained muted in the December quarter, Jiang anticipates the industry’s fundamental inflection point to kick in by the June quarter (F1Q24) with a reaccelerated growth outlook in FY24.

Retail and e-commerce growth faced mounting pressure in the December quarter, initially compromised by pronounced logistic disruptions due to growing coverage of lockdowns and then undermined by a shortage of delivery capacity when staff was coping with infections.

According to NBS, China retail took a hit in October and November and was down 0.5% Y/Y and 5.9% Y/Y, respectively. E-commerce physical goods saw a notable slowdown driven by macro headwinds and logistic disruptions.

For BABA specifically, Jiang’s checks suggested moderate deceleration in GMV growth from the September quarter at around a mid-single-digit Y/Y decline.

Demand in December saw a moderate recovery, mainly driven by solid growth in food and beverage, fresh, and FMCG on top of the health category. Still, cancellations remained high given the logistics disruption plagued by a shortage of delivery capacity.

The analyst anticipates logistics disruption to ease, evidenced by the improving situation in top-tier cities. In contrast, lower-tier regions may see some incremental pressure as the Chinese New Year holiday travel may amplify the spread nationwide, and the rolling effect could ripple through the March quarter.

Valuation-wise, with sector overhangs clearing in sight, the analyst foresaw a reset of the risk profile for platform economies in China, which should allow multiple expansions, and ultimately enable a lift in sector valuations.

Despite the recent rally, the stock is trading 8.2x forward P/E ex. net cash and investment, a bargain valuation, in Jiang’s view, especially considering the recovery ahead.

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Jiang raised F3Q23 topline estimates to RMB 244.9B from RMB 244.6B. The analyst raised our F3Q23 adjusted EBITDA to RMB 52.5B from RMB 51.5B, reflecting better-than-expected cost control, especially on Taobao Deal and Taocaicai.

Citigroup analyst Alicia Yap maintained Alibaba with a Buy and raised the price target from $144 to $160.

Price Action: BABA shares traded higher by 3.45% at $114.72 on the last check Tuesday.

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