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Alibaba (BABA US) Businesstransitionongoing Target PriceUS$137.00(Previous TPUS$148.30)Up/Downside88.0%Current PriceUS$72.88 Alibaba’s business transition is ongoing and we are expecting aninline3QFY24(March year-end)results. Alibaba International Digital Commerce Group (AIDC)willlikely remaina bright spot, and we are expecting an escalated investment tosupportmorerapidinternationalbusiness expansion starting from 3Q. Althoughtheroom for further operating efficiency improvementislikely to be limited postan aggressive year of cost control and amidfierce competition, Alibaba remainscommitted toenhancingshareholder return through dividend payout and sharebuyback.The strategic move to drive an integrated group strategy shouldenhancelong-term value,in our view.To account for persisting macroheadwindsand likely slower-than-expected near-term revenue and earningsgrowth, we lower SOTP-based TP to US$137.0, while we remain positive onAlibaba’slong-termdevelopmentpotential, aided by international expansionand cloud business development.MaintainBUY. China Internet Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Ye TAOfranktao@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk 3QFY24 preview.WeestimateAlibaba has achieved3QFY24revenue ofRMB261.7bn, up5.6% YoY,2.7% shy of Bloomberg consensus estimates,owing to likely softer-than-expected revenue generation inChina commerceretail business, as well as inthe ‘AllOthers’segment.We also expect anincrease in investment to support international business expansion, as wellas one-off impact inthe ‘AllOthers’segment to weigh ontheadjusted EBITAmargin expansion trend. We forecast group-level adjusted EBITA to decline1% YoY toRMB51.7bn in 3QFY24,translating intoa19.7% adjusted EBITAmargin (3QFY23: 21.0%). Stock Data Shareholding Structure Monetization rate improvementmay seeSTvolatility.The increase inGMV contribution from Taobaowhichdoes not charge commissionshouldweigh ontheoverallmonetization rate improvement trendshownin recentquarters.We forecast Alibaba has recorded CMR growth of1% YoY in3QFY24, on the back of2% YoY growth from Taobao and Tmall GMV. Driving more rapid international business expansion.Given theincrease in user adoption of AE Choice,androbust revenue growth ofTrendyol, we forecast international commerce retail revenue/AIDC revenuegrowth of 51/40% YoY in 3QFY24.Weareexpectingan increase insalesandmarketing activities to drive more rapid international businessexpansion from 3QFY24 onwards, whichmayweigh on short-term marginimprovement but shouldbenefit long-term growth. We estimate adjustedEBITA loss of RMB2.5bn for AIDC in 3QFY24 (3QFY23:-RMB645mn). Source: FactSet Remains committed to enhancing shareholder return.We remainpositive on Alibaba’s long-term growth potential, supported by internationalexpansion and cloud business growth. The strategic move to enhancegroup-level ROICandshareholder return could propel a market rerating, inour view. Cloud business revenue growth takes time to recover.Overall cloud businessrevenue growthwilllikely taketime to recover, in our view,given a slow recovery inenterprises’ digitalization demand, as well as Alibaba’s proactive move to phase outsome low margin business, such as CDN. Public cloud business could sustainahealthy growth trajectory while the adjustment on private and hybrid cloud businessremains a drag on revenue growth.We forecast cloud business revenue growth of1.0% in3QFY24(2QFY24:2.3%). Revision of forecast and valuation Valuation: target price of US$137.0per ADS Our SOTP-based target price is US$137.0per ADS, and translates into15.6x FY24E PE. 1)US$59.3per ADS (was US$68.7) for Taobao and Tmall Group, based on7.0x FY24EEV/adjusted EBITA(was 8.0x);the loweredtarget valuation reflects likelyslower-than-expected revenue and earnings growth; 2)US$16.4per ADS for AIDC (unchanged), based on 3.0x FY24E EV/revenue;currentlywe are assuminga20% net profit margin and 15x PE for the business at steady state;3)US$5.5per ADS for localservicesgroup(unchanged), based on 1.7x EV/revenue onFY24E revenue;4)US$7.3per ADS for Cainiao(unchanged), based on the transaction in the most recentround of financing and Alibaba’s 69.54% shareholding.5)US$24.0per ADS for the Cloud Intelligence Group (wasUS$24.3), based on a 4.2xPS multiple on FY24E revenue (before intersegment elimination);6)US$2.0per ADS for Digital Media and Entertainment Group (unchanged), based on1.7x FY24 EV/S;7)US$10.5per ADS for All Others (was US$10.7), based on 1.0x FY24E EV/Sales.8)US$12.0per ADS for strategic investment witha30% holding discount. Source: Bloomberg, CMBIGM Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to thesecurities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securitiesor issuer; and (2) no