BABA(HK:09988) ZHONGTAI SECURITIES·2024-09-05 03:43Investment Rating - The report gives a "Buy" rating for the company, expecting a 15%+ relative return over the next 6-12 months [181] Core Views - The company has been a pioneer in China's e-commerce and internet finance sectors, shaping the current e-commerce ecosystem [18] - It has faced significant challenges since 2020, including market share loss in e-commerce, slowing cloud growth, and regulatory issues, leading to an 80%+ drop in market cap [56] - The company is undergoing strategic adjustments to improve platform competitiveness, with signs of marginal improvement [154] Historical Performance - The company achieved a David vs Goliath victory over eBay in the early 2000s through superior platform design, including free listings, built-in chat, and payment guarantees [8] - It played a crucial role in building China's e-commerce infrastructure, including payment systems and logistics networks [9][10][14] - The company's market share in e-commerce has declined from around 80% to 40% due to competition from Pinduoduo and Douyin [30] Competitive Landscape - Pinduoduo's success is attributed to its consumer-first approach and efficient platform design, which has led to rapid GMV growth [32][43] - Douyin has rapidly expanded in live-streaming e-commerce, reaching over 2 trillion GMV in 2023 [48][77] - The company is facing competition from multiple fronts, including Pinduoduo, Douyin, and emerging players like Xiaohongshu [60] Strategic Adjustments - The company has recognized its platform efficiency issues and is implementing reforms, including price competitiveness initiatives [89][114] - It is shifting from a merchant-centric to a consumer-centric approach, with changes in traffic allocation rules [115] - The company is adopting a gradual reform strategy to balance platform competitiveness and merchant interests [93][119] Financial Performance - The company has generated over 1 trillion RMB in free cash flow over the past decade, with an average of 150 billion RMB annually in the last five years [141] - It has significantly increased shareholder returns, with 42.8 billion USD in buybacks and dividends over the past 3.5 years [144] - The company's ROIC is currently low at 6.9%, but management aims to improve it to double digits [127] Valuation - The company's non-business assets are valued at 815.2 billion RMB, including 446.5 billion RMB in net cash [148] - The core e-commerce business is valued at 6.3-9.5x PE based on current profitability [135][148] - Including growth potential, the total valuation could reach 2.64 trillion RMB, representing a 47% margin of safety [153][167] Future Outlook - The company is expected to achieve 7.6% revenue growth in FY2025, with e-commerce growing at 2.2% and international business growing at 32.3% [155][168][170] - Cloud business is expected to grow at 8-10% annually, with improving profitability [191] - The company is focusing on improving capital allocation efficiency and divesting non-core assets [127]