Brokers’ take: Morningstar upbeat on Alibaba, says shares are undervalued
Yong Hui Ting
THE worst for e-commerce giant Alibaba will soon be over, following a forecast 8 per cent fall in adjusted earnings before interest, taxes and amortisation (Ebita)* for the year ended March 2023.
Morningstar analyst Chelsey Tam retained her fair value estimates on the group at US$179 and HK$173 for its US and Hong Kong listing respectively and opined that its shares are currently undervalued in a report on Tuesday (Jul 12).
The stock has a 4-star Morningstar rating, and its economic moat is deemed “wide”.
The research firm attributed the revised adjusted Ebita estimates to Alibaba’s continuous investment in content, after sales services and logistics in China retail marketplaces, and cloud, as well as weak consumer sentiment in China. Tam added that Covid-19 disruptions in the June quarter would also have contributed to a weaker performance.
These investments are, however, expected to contribute positively to the business in the long run. For example, the investment in content in the Guangguang tab on the Taobao app and “Mini Topics” on Taobao’s first page in the China retail marketplace business is likely to bring more traffic, said Tam.
The group’s commitment to invest in logistics services and its belief in the future of digitalisation will see additional injections to improve user experience in these areas, she added.
While Alibaba’s merchandise volume appeared to have lagged in June, Morningstar believes growth in revenue for the firm is soon to be expected in the year ended March 2024 as the Chinese economy recovers, along with consumption.
It further forecasts Alibaba’s cloud-adjusted Ebita margin to be up by 100 basis points in FY2023 as economies of scale shift away from lower-margin products.
The research firm, however, cautioned investors on downside risks in greater investment in DingTalk, Alibaba’s communication app, rising competition, Covid-19 disruptions and weaker business sentiment.
Amendment note: The article earlier incorrectly referenced Ebitda figures. It has since been amended to reference Ebita figures instead.
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