Alibaba's Restructuring Likely To Unlock Significant Value, Morgan Stanley Sees Over 100% Upside In Bull Case Scenario

Morgan Stanley analyst Gary Yu reiterates an Overweight rating on Alibaba Group Holding Limited BABA with a $150 price target.

Alibaba will reportedly split into six units: Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics Group, Global Digital Commerce Group, and Digital Media and Entertainment Group. 

Each business group CEO and board will manage the corresponding unit and each business group. According to Chair and CEO Daniel Zhang, the company may pursue independent fund-raising and listings in time, except for Taobao Tmall Commerce Group, which will remain a wholly owned unit of Alibaba Group.

Yu thinks the news will be a significant positive catalyst for Alibaba's share price. 

Alibaba is trading at a significant discount on the analyst's SOTP value. The SOTP valuation for the bull-case factors in the values of Alibaba's principal consolidated subsidiaries. The valuation also includes Alibaba's private and public equity investments. 

The analyst's bull-case value is $530 billion ($200 per share). He sees potential for more than 2x upside to his bull case of $200 per share. 

The $200 per share valuation encompasses Marketplace-based core China commerce($128 per share), Direct sales ($5 per share), AliCloud ($21 per share), International retail ($11 per share), Local services ($9 per share), Logistics, Digital Media & Entertainment, AliHeath ($6 per share) and Equity investments ($9 per share).

Yu believes the market is still under-appreciating Alibaba's non-core businesses by assigning zero value to its listed equity investments and all other consolidated businesses. 

With gradual consumption recovery in China (turnaround of CMR in F1Q24) and the potential catalyst of corporate restructuring, Yu reiterates BABA as the top pick in China's Internet.

Price Action: BABA shares traded higher by 1.52% at $99.90 on the last check Wednesday.