1) Alibaba reported 1Q12 results that beat consensus estimates, with revenue down 4% quarter-over-quarter due to seasonal effects. However, paying membership continued to decline across platforms such as China Gold Suppliers. 2) The analyst maintains a target price of HK$13.5 per share, matching the proposed privatization deal price, expecting the deal to succeed given a lack of near-term revenue catalysts. 3) Further details of the privatization proposal will be released on April 24th, with lower revenue forecasts for 2012-2013 reflecting an investment in improving quality and attracting traffic away from membership growth.

1. 24 April 2012
Last Closing: HK$13.3 Upside: +1.5% Target Price: HK$13.5 Internet Sector
Alibaba (1688.HK) UP MP OP
Lower forecasts on 1Q12 results;
Privatization document to be sent on 24th Apr
Financial Highlights
Y/E 31 Dec 2010 2011 2012E 2013E 2014E
LT
Revenue (RMB m) 5,558 6,417 6,633 7,207 8,990 Neutral
BUY
YoY growth 43% 15% 3% 9% 25%
Net profit (RMB m) 1,470 1,709 1,600 1,895 2,376
SELL BUY
YoY growth 40% 16% -6% 18% 25%
EPS (RMB) 0.20 0.29 0.34 0.32 0.38
DPS (RMB) 0.17 0.19 - - -
Dividend yield 1.3% 1.4% - - -
PE 40 33 33 28 23 Stock
Source: Company, BOCOM Int’l estimates
1Q12 results review: Diluted EPS was HKD0.084, beating the consensus of HKD0.07 While total registered users on the
by 20%. Total revenue was RMB1.589bn, down 4.2% QoQ and up 3.7% YoY, and 4% Alibaba transaction platform increased by
4.5% to 79.8mn, paying members
higher than consensus. Gross margin contracted to 78.3% from 81.9% in 1Q11, continued to decrease at 9% YoY or
mainly due to higher TAC cost and lower margins of Aliexpress and HiChina. 1.5% QoQ.
Operating profit was RMB359mn, down 29% QoQ and 26% YoY, attributable to Attributable to the Chinese New Year
higher staff costs and operating expenses during the period. Cash stood at holiday, revenue from China marketplace
RMB11.7bn, remaining stable sequentially. decreased while VAS contributed 30% of
segment revenue.
Paying members continued to decrease: While total registered users on the Alibaba Lower revenue forecasts for 2012/13.
transaction platform increased by 4.5% to 79.8mn, paying members continued to
Further details of privatization deal will be
decrease at 9% YoY or 1.5% QoQ. China Gold Suppliers decreased by 25% YoY or sent out on 24 Apr.
11.6% QoQ to 87.5mn and Global Gold Suppliers declined by 20% on a yearly basis
but increased by 1.1% sequentially to 7.6mn. TrustPass members in China declined Maintain TP at the privatization price of
HK$13.5.
by 7% YoY to 659k, but flat from 4Q11. We expect the number of paying members to
decline further in 2012 amid the company’s reorganization.
Revenue in China marketplace fell, due to seasonality. Attributable to the Chinese Stock data
New Year holiday, revenue from China Gold Supplier and China Trust Pass dropped 52w High 14.40
52w Low 6.39
by 3% and 4% QoQ, respectively, while VAS contributed 30% of segment revenue. Market cap (HK$m) 66,566
We expect VAS based on transactions will be the major revenue driver in the long Issued shares (m) 5,005
run, as Alibaba’s business model is shifting away from membership growth. Revenue Avg daily vol (m) 2.59
from Hichina, which provides web solutions, grew by 3% QoQ and 20% YoY to 1-mth change（%） 0 76
YTD change（%） 65.63
RMB128mn. 50d MA 12.43
200d MA 9.82
Margin is expected to remain low amid focus on business model transformation 14-day RSI 78.66
and user experience enhancement. The company remained focused on improving Source: Company data, Bloomberg
user experience on its platforms. The continued investment in upgrading business
model and suppliers’ quality is expected to be fundamental to business success. 1 Year performance chart
Together with investments in AliExpress and Liang Wu Xian for gaining more quality HSI 1688.HK
10%
suppliers and products, we expect profit margin to remain low at 22-25% in 2012. 0%
-10%
-20%
Privatization deal is likely to succeed, given shortage of revenue catalyst in the near -30%
term. We lower our forecasts on AliExpress and Liang Wu Xian as the company plans -40%
-50%
to invest more in improving product quality and attracting traffic. In sum, we adjust -60%
our revenue estimates by -8%/-11% for 2012/13 on decreasing paying members and Apr-11 Jul-11 Oct-11 Jan-12 Apr-12
the fact that the VAS model is still being developed into a healthy growth platform.
We maintain our TP at the privatization price of HK$13.5, in anticipation of the deal. Source: Company data, Bloomberg
Further details of the privatization of Alibaba.com will be provided in the Scheme
Document to shareholders on April 24, 2012. Gu Xinyu (Connie)
conniegu@bocomgroup.com
Tel: (8610) 8800 9788 - 8045
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2. Alibaba (1688.HK)  Internet Sector 24 April 2012
Figure 1: Summary of 1Q12 results
Bocom
(RMB m) 1Q11 4Q11 1Q12 QoQ YoY Forecast Difference Comments
International Marketplace 911 946 916 -3% 1% 902 2%
China GS(Gold Supplier) 885 917 888 -3% 0% 876 1% VAS contributed 30% of CGS revenue
Global GS(International TrustPass) 26 29 28 -2% 8% 26 6%
China Marketplace - China TrustPass 515 589 545 -7% 6% 598 -9%
China TrustPass 481 516 493 -4% 3% 521 -5% VAS contributed 30% of Trustpass revenue
Others 34 74 52 -29% 52% 77 -32%
Others-software/Internet infrastructure 106 124 128 3% 20% 128 0% Mainly from HiChina
Total revenues 1,532 1,659 1,589 -4% 4% 1,654 -4% Decreased QoQ, mainly due to seasonal effect
of the CNY holiday
Cost of services (277) (359) (344) -4% 24% (331) 4% Increased YoY, due to higher traffic acquisition
costs
Gross profits 1,255 1,300 1,245 -4% -1% 1,323 -6%
Gross margin (%) 81% 78.3% 78.3% 80%
Sales and Marketing (481) (523) (472) -10% -2% (486) -3% Lower marketing cost and commission spending
Product development (171) (219) (233) 6% 36% (225) 4% Increasing development costs
General and administrative (169) (115) (183) 59% 9% (149) 23%
Other operating income (loss) 49 61 3 -96% -95% 30 -91%
Operating profits 483 504 359 -29% -26% 493 -27%
Operating margin (%) 32% 30% 23% 30%
Interest income / (expense) 57 84 72 -14% 28% 85 -15%
Shr of losses from associates (1) 2 0 -80% -145% 1 -69%
Pretax profits 539 589 432 -27% -20% 579 -25%
Income tax credit / (expense) (88) (202) (94) -54% 7% (97) -4%
Net profits 451 388 338 -13% -25% 482 -30%
Net profit margin (%) 29% 23% 21% 29%
EPS-basic (RMB) 0.089 0.077 0.068 -12% -24% 0.096 -29%
EPS-diluted (RMB) 0.089 0.077 0.068 -12% -23% 0.095 -29%
EPS-basic (HK$) 0.106 0.094 0.084 -11% -21% 0.119 -30%
EPS-diluted (HK$) 0.105 0.095 0.084 -11% -20% 0.118 -29%
Source: Company Data, BOCOM Int’l
Figure 2: Revenue breakdown
Revenue breakdown (%) 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
International Marketplace 59% 58% 58% 58% 59% 58% 59% 57%
China GS(Gold Supplier) 57% 56% 57% 56% 58% 57% 57% 55%
Global GS(International TrustPass) 2% 2% 2% 2% 2% 2% 2% 2%
China Marketplace - China TrustPass 33% 34% 34% 34% 34% 34% 35% 36%
China TrustPass 32% 33% 33% 33% 31% 31% 32% 31%
Others 1% 2% 1% 1% 2% 3% 3% 4%
Others-software/Internet infrastructure 8% 8% 8% 8% 7% 8% 6% 7%
Source: Company Data, BOCOM Int’l
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3. Alibaba (1688.HK)  Internet Sector 24 April 2012
Figure 3: Total registered users increased Figure 4: Total Storefront increased
th Registered users, th 个 Storefronts
90,000 12,000
International International
80,000
10,000
70,000 China China
60,000 8,000
50,000
6,000
40,000
30,000 4,000
20,000
2,000
10,000
0 0
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
Source: Company Data, BOCOM Int’l Source: Company Data, BOCOM Int’l
Figure 5: Total number of China TrustPass members Figure 6: ARPU of China TrustPass
decreased
China TrustPass RMB China TrustPass
800
800
700 780
600 760
500 740
400 720
700
300
680
200
660
100 640
0 620
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
Source: Company Data, BOCOM Int’l Source: Company Data, BOCOM Int’l
Figure 7: Total number of China Gold Suppliers decreased Figure 8: ARPU of China Gold Suppliers
RMB ARPU China GS(Gold Supplier)
140
China GS(Gold
Supplier) 10,000
120
9,000
China GS(Gold Supplier)
100 8,000
7,000
80 6,000
5,000
60
4,000
40 3,000
2,000
20
1,000
0 0
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
Source: Company Data, BOCOM Int’l Source: Company Data, BOCOM Int’l
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4. Alibaba (1688.HK)  Internet Sector 24 April 2012
Figure 9: Total number of Global Gold Suppliers decreased Figure 10: ARPU of Global Gold Suppliers
Global GS(International TrustPass) Global GS(International TrustPass)
th RMB
4,000
25 Global GS(International
Global GS(International 3,500
TrustPass)
TrustPass)
3,000
20
2,500
15
2,000
10 1,500
1,000
5
500
0 0
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
Source: Company Data, BOCOM Int’l Source: Company Data, BOCOM Int’l
Figure 11: Alibaba PE Band
25 Cancellation
Price HKD 13.5
20
30X
15 25X
HKD
20X
10
15X
10X
5
5X
0
2008-2-22 2008-7-1 2008-11-8 2009-3-18 2009-7-26 2009-12-3 2010-4-12 2010-8-20 2010-12-28 2011-5-7 2011-9-14 2012-1-22
Source: Company Data, Bloomberg, BOCOM Int’l
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5. Alibaba (1688.HK)  Internet Sector 24 April 2012
Company background
Alibaba.com is the global leader in e-commerce for small businesses and the flagship company of Alibaba Group. Alibaba.com
makes it easy for millions of buyers and suppliers around the world to do business online mainly through three marketplaces:
a global trade platform (alibaba.com) for importers and exporters; a Chinese platform (1688.com) for domestic trade in China;
and a transaction-based wholesale platform on the global site (aliexpress.com) geared for smaller buyers seeking fast
shipment of small quantities of goods. Together, these marketplaces form a community of close to 76.3 million registered
users in more than 240 countries and regions.
Alibaba (1688 HK): Financial Statements
Profit & loss (RMB m) Cash flow (RMB m)
Year ended 31 Dec 2010 2011 2012E 2013E 2014E Year ended 31 Dec 2010 2011 2012E 2013E 2014E
Total revenues 5,558 6,417 6,633 7,207 8,990 Profit before income taxes 1,706 2,137 1,895 2,197 2,750
Cost of services (931) (1,256) (1,437) (1,561) (1,947) Depreciation 187 195 181 207 241
Gross profits 4,627 5,161 5,197 5,646 7,043 Amortisation 40 58 56 56 57
Share-based compensation expense 341 336 278 322 367
Sales and Marketing (2,051) (2,046) (1,987) (2,051) (2,469) other adjustment (188) (331) (297) (326) (357)
Product development (580) (785) (899) (1,003) (1,323) change in working capital 873 (119) 1,506 (497) 2,564
General and administrative (568) (640) (726) (738) (885) Income tax paid (236) (428) (295) (302) (374)
Other operating income (loss) 109 127 12 18 26 Net cash from operating activities 2,724 1,849 3,324 1,658 5,248
Operating profits 1,537 1,817 1,597 1,872 2,393
CAPEX (294) (172) (201) (362) (432)
Interest income / (expense) 176 319 294 322 353 Others (2,452) (1,413) 337 366 397
Shr of losses from associates (6) 1 3 4 4 Net cash for investing activities (2,747) (1,585) 136 3 (35)
Pretax profits 1,706 2,137 1,895 2,197 2,750
Net cash for financing activities 51 (244) (1,286) 0 0
Income tax expense (236) (428) (295) (302) (374)
Net profits 1,470 1,709 1,600 1,895 2,376 Net cash and cash equivalents 28 20 2,174 1,661 5,213
Cash at beginning of year 2,749 3,086 3,433 5,607 7,268
Balance sheet (RMB m) Effect of exchange rate for the year (6) (5) 0 0 1
Year ended 31 Dec 2010 2011 2012E 2013E 2014E Cash at end of year 3,086 3,433 5,607 7,268 12,481
Property and equipment 781 733 701 801 934
Goodwill/intangibles 599 679 676 676 678 Financial ratios
Prepayments, deposits and others 47 90 67 61 99 Year ended 31 Dec 2010 2011 2012E 2013E 2014E
Direct selling cost 45 105 120 130 162 Margin analysis
others 193 448 452 464 505 Gross margin 83% 80% 78% 78% 78%
Total Non-current assets 1,665 2,054 2,015 2,132 2,377 Operating margin 28% 28% 24% 26% 27%
Prepayments, deposits and other 294 Net margin 23% 28% 52% 60% 59%
518 321 591 547
receivables EBITDA - excl. SBC 31% 31% 27% 29% 29%
Direct Selling Cost 596 570 652 708 884 ROA (%) 13% 12% 10% 10% 11%
Restricted cash 168 408 408 408 408 ROE (%) 27% 26% 19% 18% 18%
Term deposits with original 6,497
8,219 8,169 8,119 8,069
maturities of over three months
Revenue growth (%) 43% 15% 3% 9% 25%
Cash and cash equivalents 3,086 3,433 5,607 7,268 12,481
EBITDA growth (%) 45% 17% -12% 17% 27%
others 399 93 101 108 116
EPS growth (%) 47% 17% -4% 19% 30%
Total Current assets 11,040 13,241 15,257 17,202 22,505
Net gearing (%) net cash net cash net cash net cash net cash
Deferred revenue 54 120 502 174 669
Account receivables turnover (days) 2.5 2.5 2.6 2.4 1.9
Other Payables 464 694 605 601 645
Account payables turnover (days) 322.4 276.9 322.0 322.0 322.0
Total non-current liability 517 814 1,107 774 1,314
Dividend yield 2% 0% 0% 0% 0%
Deferred revenue and customer 4,101 3,969 4,909 5,333 6,653
advances Current Ratio 1.7 1.9 2.3 2.5 2.4
Other payables and accruals 2,283 2,992 1,859 1,612 2,557
Total current liability 6,385 6,961 6,767 6,945 9,210
Net Assets 5,803 7,520 9,398 11,615 14,358
Total Equity 5,803 7,520 9,398 11,615 14,358
Source: Company data, BOCOM Int’l estimates
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6. Alibaba (1688.HK)  Internet Sector 24 April 2012
BOCOM International
11/F, Man Yee Building, 68 Des Voeux Road, Central, Hong Kong
Main: + 852 3710 3328 Fax: + 852 3798 0133 www.bocomgroup.com
Rating System
Company Rating Sector Rating
Buy: Expect more than 20% upside in 12 months Outperform (“OP”): Expect more than 10% upside in 12 months
LT Buy: Expect more than 20% upside but longer than 12 months Market perform (“MP”): Expect low volatility
Neutral: Expect low volatility Underperform (“UP”): Expect more than 10% downside in 12 months
Sell: Expect more than 20% downside in 12 months
Research Team
Deputy Head of Research
Raymond Cheng, (852) 2977 9393 raymond.cheng
CFA, CPA, CA @bocomgroup.com
Banks @bocomgroup.com Metals & Mining @bocomgroup.com
Yang Qingli (86) 10 8800 9788 - 8008 yangqingli Luo Rongjin (86) 10 8800 9788 - 8050 luorongjin
Li Shanshan (86) 10 8800 9788 - 8058 lishanshan Jovi Li (852) 2977 9243 jovi.li
Wan Li (86) 10 8800 9788 - 8051 wanli
Coal Oil & Gas
He Wei (86) 10 8800 9788 - 8040 hewei Wu Fei (852) 2977 9392 fei.wu
Wang Rongjuan (86) 10 8800 9788 - 8046 wangrongjuan Maggie Wang (852) 2977 9390 maggie.wang
Consumer Property
Phoebe Wong (852) 2977 9391 phoebe.wong Alfred Lau, CFA (852) 2977 9235 alfred.lau
Albert Yip, CFA (Discretionary) (852) 2977 9205 albertyip Toni Ho, CFA, FRM (852) 2977 9220 toni.ho
Summer Wang (Staples) (852) 2977 9221 summer.wang
Kevin Wang (852) 2977 9386 kevin.wang
Economics Renewable Energy
Li Miaoxian (86) 10 8800 9788 - 8043 limiaoxian Lynda Peng (86) 10 8800 9788 - 8044 lynda
Electronics Strategy
Miles Xie (852) 2977 9216 miles.xie Benny Wong, CFA (852) 2977 9215 benny.wong
Benjamin Pei (86) 10 8800 9788 - 8041 benjaminpei
Healthcare Telecom, Media & Small/Mid - Caps
Wu Bin (86) 10 8800 9788 - 8052 wu.bin Li Zhiwu (852) 2977 9209 lizhiwu
Insurance Transportation & Industrial
Li Wenbing (86) 10 8800 9788 - 8053 liwenbing Geoffrey Cheng, CFA (852) 2977 9380 geoffrey.cheng
George Yin (Automobile) (86) 10 8800 9788 - 8039 george.yin
Ian Feng (852) 2977 9381 Yinan.feng
Internet
Connie Gu (86) 10 8800 9788 - 8045 conniegu
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7. Alibaba (1688.HK)  Internet Sector 24 April 2012
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