Benchmark analyst Fawne Jiang reiterated a Buy on Alibaba Group Holding Limited BABA . The analyst 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, the analyst expects the industry 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.
For BABA specifically, the analyst’s checks suggested that GMV growth moderately decelerated 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 improving the 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 foresees 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’s current trading multiple is a bargain valuation, in the analyst’s view, especially considering the recovery ahead.
The analyst raised his F3Q23 topline estimates to RMB 244.9B from RMB 244.6B, reflecting more robust than expected new and supermarket growth, higher order cancellation rate due to logistics disruptions, and better FX in Trendyol, and improving growth in Lazada.
On the bottom line, the analyst raised his F3Q23 adjusted EBITDA to RMB 52.5B from RMB 51.5B, reflecting better than expected cost control, especially on Taobao Deal and Taocaicai.
Price Action: BABA shares traded higher by 0.65% at $110.92 on the last check Wednesday.