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 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. 

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.