Alibaba Group Holding:Strong topline growth despite macro slowdownMaintain Buy with USD95target price

A mixed bag: revenue beat but earnings miss

    Margin pressure persists into FY17

    Ali’s operating margin fell 2.8pp in FY16 due to its investments in new businesses including cloud, international venture, logistics and entertainment services. While margin pressure from investments will continue in FY17F, Ali management indicated it would make better disclosures on its core business and its invested entities such as Cainiao and Ant Financial in the future to help the market better value its businesses. We believe increased transparency will be welcomed by the market. We forecast a 4pp decline in FY17F op margin.

    Maintain Buy with USD95 target price

    Our FY17 earnings forecast are unchanged but we trim 18F earnings by 1.4% on higher equity pick-up loss. Our SOTP-based TP increased 4% to USD95 as we revised up our valuation for Ali’s investment portfolio. The stock currently trades at 27x FY17F and 23x FY18F earnings.