Date of Report: October 28, 2024
Broker: UOB Kay Hian Private Limited

Market Sentiment and Growth Outlook for Alibaba

Investor sentiment around Alibaba is increasingly positive, driven by improving regulatory conditions and optimism in China’s consumption recovery. With anticipated policy support and a focus on rejuvenating consumer sentiment, Alibaba is well-positioned to benefit from an upward valuation trajectory, especially in light of the upcoming 11.11 shopping festival, a key retail event for China’s e-commerce sector.

Strategic Collaborations with JD.com and Tencent

Alibaba recently announced a significant collaboration with JD.com to enhance its logistical capabilities and improve user convenience. This partnership includes integrating JD Logistics services within Alibaba’s Tmall and Taobao platforms, as well as adding Alipay as a payment option on JD’s platform. Additionally, Alibaba’s integration of WeChat Pay, a Tencent service, into its ecosystem demonstrates a collaborative strategy to increase user options and streamline payment processes. These moves reflect Alibaba’s approach to foster a cooperative rather than competitive environment in China’s e-commerce sector, aligning with recent regulatory guidance.

Positioning and Growth Potential in E-Commerce

Alibaba remains a leader in China’s e-commerce sector, especially with its stronghold in categories such as apparel and fashion. The company’s substantial investments in ad-tech and platform enhancements are aimed at accelerating GMV (Gross Merchandise Value) growth and narrowing the gap between revenue and GMV. Alibaba is expected to leverage its position as a market leader to drive high single-digit GMV growth in the second half of 2024, particularly through the increased take rate supported by its ad-tech advancements.

Valuation and Target Price

UOB Kay Hian has maintained a “BUY” recommendation for Alibaba with a target price of HK$130.00. Currently, Alibaba is trading below its historical P/E ratios, positioned as a strong candidate for valuation repair due to its relatively low 2025F P/E multiple of 8-11x compared to the sector’s average of 14x. This undervaluation makes Alibaba attractive, especially as government policies aim to stimulate consumption and enhance e-commerce infrastructure.

Sector-Wide Catalysts and Alibaba’s Growth Leverage

Several factors in the broader market are expected to support Alibaba’s growth. These include ongoing government support for consumer spending, increased online retail penetration, and Alibaba’s commitment to improving its technological and logistical capabilities. The convergence of these favorable conditions, alongside Alibaba’s strategic investments in core and emerging business segments, positions the company to capitalize on China’s vast e-commerce potential, which is currently underrepresented in global market capitalization relative to its size.