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Citi analyst Alicia Yap added Alibaba (NYSE:BABA) shares to the bank’s Focus List ahead of the FY1Q23 earnings results.
The analyst believes Alibaba shares will mostly trade in pair with China’s recovery pace in 2H22 given that the regulatory pressure has somehow eased.
On a positive note, the analyst sees reasons to be positive.
“Given mgmt’s target of driving high quality revs growth and further optimizing cost with narrowing losses in several initiatives, together with the low base effect, we believe profit could potentially improve more than expected. Together with US$12bn outstanding in REPO, solid cash flow generation ability, and continued advancement of its technology infrastructure, we recommend investors to revisit BABA as a core investment,” Yap told clients in a note.
Still, the analyst cut the price target to $172 per share from $176 to reflect the earnings estimates revision.
Negative revisions are needed to reflect “April as the worst month and FY1Q23 as the worst quarter of the year,” Yap added.
“We have revised our revs/non-GAAP profit for FY1Q23, FY2023-FY2025 by -4.7%/-2.8%, -2.2%/+1.6%, -2.5%/+1.5%, and -2.6%/+0.9%, respectively, to reflect the worst in June with gradual improvement in China commerce and more conservative improvement in cloud, local services, and Cainiao. We estimate better profit thanks to continued cost optimization efforts and disciplined spend. We forecast FY2023 total revs to +6% YoY to Rmb900bn and adj. EBITA of Rmb129bn (14% margin), reflecting reduced loss in local services and int’l commerce,” she added.
Net-net, the analyst expects Alibaba to report “relatively in-line” results while investors are likely to focus on “sequential improvement trend into July/Aug, qualitative color on 2H recovery and update on investment initiatives.”
Alibaba shares are down 1.7% today.
