Bocom report on Alibaba apr 2012

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Bocom report on Alibaba apr 2012

  1. 1. 24 April 2012 Last Closing: HK$13.3 Upside: +1.5% Target Price: HK$13.5 Internet SectorAlibaba (1688.HK) UP MP OPLower forecasts on 1Q12 results;Privatization document to be sent on 24th AprFinancial HighlightsY/E 31 Dec 2010 2011 2012E 2013E 2014E LTRevenue (RMB m) 5,558 6,417 6,633 7,207 8,990 Neutral BUYYoY growth 43% 15% 3% 9% 25%Net profit (RMB m) 1,470 1,709 1,600 1,895 2,376 SELL BUYYoY growth 40% 16% -6% 18% 25%EPS (RMB) 0.20 0.29 0.34 0.32 0.38DPS (RMB) 0.17 0.19 - - -Dividend yield 1.3% 1.4% - - -PE 40 33 33 28 23 StockSource: 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 - 8045Download our reports from Bloomberg: BOCM〈enter〉
  2. 2. Alibaba (1688.HK)  Internet Sector 24 April 2012Figure 1: Summary of 1Q12 results Bocom(RMB m) 1Q11 4Q11 1Q12 QoQ YoY Forecast Difference CommentsInternational Marketplace 911 946 916 -3% 1% 902 2%China GS(Gold Supplier) 885 917 888 -3% 0% 876 1% VAS contributed 30% of CGS revenueGlobal 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 revenueOthers 34 74 52 -29% 52% 77 -32%Others-software/Internet infrastructure 106 124 128 3% 20% 128 0% Mainly from HiChinaTotal revenues 1,532 1,659 1,589 -4% 4% 1,654 -4% Decreased QoQ, mainly due to seasonal effect of the CNY holidayCost of services (277) (359) (344) -4% 24% (331) 4% Increased YoY, due to higher traffic acquisition costsGross 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 spendingProduct development (171) (219) (233) 6% 36% (225) 4% Increasing development costsGeneral 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’lFigure 2: Revenue breakdownRevenue breakdown (%) 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11International 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’lDownload our reports from Bloomberg: BOCM〈enter〉 2
  3. 3. Alibaba (1688.HK)  Internet Sector 24 April 2012Figure 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 4Q11Source: Company Data, BOCOM Int’l Source: Company Data, BOCOM Int’lFigure 5: Total number of China TrustPass members Figure 6: ARPU of China TrustPassdecreased 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 4Q11Source: Company Data, BOCOM Int’l Source: Company Data, BOCOM Int’lFigure 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 4Q11Source: Company Data, BOCOM Int’l Source: Company Data, BOCOM Int’lDownload our reports from Bloomberg: BOCM〈enter〉 3
  4. 4. Alibaba (1688.HK)  Internet Sector 24 April 2012Figure 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 4Q11Source: Company Data, BOCOM Int’l Source: Company Data, BOCOM Int’lFigure 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 2012-1-22Source: Company Data, Bloomberg, BOCOM Int’lDownload our reports from Bloomberg: BOCM〈enter〉 4
  5. 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 StatementsProfit & loss (RMB m) Cash flow (RMB m)Year ended 31 Dec 2010 2011 2012E 2013E 2014E Year ended 31 Dec 2010 2011 2012E 2013E 2014ETotal revenues 5,558 6,417 6,633 7,207 8,990 Profit before income taxes 1,706 2,137 1,895 2,197 2,750Cost of services (931) (1,256) (1,437) (1,561) (1,947) Depreciation 187 195 181 207 241Gross 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 367Sales 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) 2,564General 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 5,248Operating 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 397Shr 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 0Income 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 7,268Balance sheet (RMB m) Effect of exchange rate for the year (6) (5) 0 0 1Year ended 31 Dec 2010 2011 2012E 2013E 2014E Cash at end of year 3,086 3,433 5,607 7,268 12,481Property and equipment 781 733 701 801 934Goodwill/intangibles 599 679 676 676 678 Financial ratiosPrepayments, deposits and others 47 90 67 61 99 Year ended 31 Dec 2010 2011 2012E 2013E 2014EDirect selling cost 45 105 120 130 162 Margin analysisothers 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 547receivables 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 8,069maturities 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 cashDeferred revenue 54 120 502 174 669 Account receivables turnover (days) 2.5 2.5 2.6 2.4 1.9Other Payables 464 694 605 601 645 Account payables turnover (days) 322.4 276.9 322.0 322.0 322.0Total 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 6,653advances Current Ratio 1.7 1.9 2.3 2.5 2.4Other payables and accruals 2,283 2,992 1,859 1,612 2,557Total current liability 6,385 6,961 6,767 6,945 9,210Net Assets 5,803 7,520 9,398 11,615 14,358Total Equity 5,803 7,520 9,398 11,615 14,358Source: Company data, BOCOM Int’l estimatesDownload our reports from Bloomberg: BOCM〈enter〉 5
  6. 6. Alibaba (1688.HK)  Internet Sector 24 April 2012BOCOM International 11/F, Man Yee Building, 68 Des Voeux Road, Central, Hong Kong Main: + 852 3710 3328 Fax: + 852 3798 0133 www.bocomgroup.comRating SystemCompany Rating Sector RatingBuy: Expect more than 20% upside in 12 months Outperform (“OP”): Expect more than 10% upside in 12 monthsLT Buy: Expect more than 20% upside but longer than 12 months Market perform (“MP”): Expect low volatilityNeutral: Expect low volatility Underperform (“UP”): Expect more than 10% downside in 12 monthsSell: Expect more than 20% downside in 12 monthsResearch TeamDeputy Head of ResearchRaymond Cheng, (852) 2977 9393 raymond.chengCFA, CPA, CA @bocomgroup.comBanks @bocomgroup.com Metals & Mining @bocomgroup.comYang Qingli (86) 10 8800 9788 - 8008 yangqingli Luo Rongjin (86) 10 8800 9788 - 8050 luorongjinLi Shanshan (86) 10 8800 9788 - 8058 lishanshan Jovi Li (852) 2977 9243 jovi.liWan Li (86) 10 8800 9788 - 8051 wanliCoal Oil & GasHe Wei (86) 10 8800 9788 - 8040 hewei Wu Fei (852) 2977 9392 fei.wuWang Rongjuan (86) 10 8800 9788 - 8046 wangrongjuan Maggie Wang (852) 2977 9390 maggie.wangConsumer PropertyPhoebe Wong (852) 2977 9391 phoebe.wong Alfred Lau, CFA (852) 2977 9235 alfred.lauAlbert Yip, CFA (Discretionary) (852) 2977 9205 albertyip Toni Ho, CFA, FRM (852) 2977 9220 toni.hoSummer Wang (Staples) (852) 2977 9221 summer.wangKevin Wang (852) 2977 9386 kevin.wangEconomics Renewable EnergyLi Miaoxian (86) 10 8800 9788 - 8043 limiaoxian Lynda Peng (86) 10 8800 9788 - 8044 lyndaElectronics StrategyMiles Xie (852) 2977 9216 miles.xie Benny Wong, CFA (852) 2977 9215 benny.wong Benjamin Pei (86) 10 8800 9788 - 8041 benjaminpeiHealthcare Telecom, Media & Small/Mid - CapsWu Bin (86) 10 8800 9788 - 8052 wu.bin Li Zhiwu (852) 2977 9209 lizhiwuInsurance Transportation & IndustrialLi 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.fengInternetConnie Gu (86) 10 8800 9788 - 8045 connieguDownload our reports from Bloomberg: BOCM〈enter〉 6
  7. 7. Alibaba (1688.HK)  Internet Sector 24 April 2012Analyst CertificationThe authors of this report, hereby declare that: (i) all of the views expressed in this report accurately reflect their personal views about anyand all of the subject securities or issuers; and (ii) no part of any of their compensation was, is, or will be directly or indirectly related to thespecific recommendations or views expressed in this report; (iii) no insider information/ non-public price-sensitive information in relation tothe subject securities or issuers which may influence the recommendations were being received by the authors.The authors of this report further confirm that (i) neither they nor their respective associates (as defined in the Code of Conduct issued by theHong Kong Securities and Futures Commission) have dealt in or traded in the stock(s) covered in this research report within 30 calendar daysprior to the date of issue of the report; (ii)) neither they nor their respective associates serve as an officer of any of the Hong Kong listedcompanies covered in this report; and (iii) neither they nor their respective associates have any financial interests in the stock(s) covered inthis report.DisclaimerBy accepting this report (which includes any attachment hereto), the recipient hereof represents and warrants that he is entitled to receivesuch report in accordance with the restrictions set forth below and agrees to be bound by the limitations contained herein. Any failure tocomply with these limitations may constitute a violation of law.This report is strictly confidential and is for private circulation only to clients of BOCOM International Securities Ltd. This report is beingsupplied to you strictly on the basis that it will remain confidential. No part of this report may be (i) copied, photocopied, duplicated, storedor reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, forany purpose without the prior written consent of BOCOM International Securities Ltd.BOCOM International Securities Ltd, its affiliates and related companies, their directors, associates, connected parties and/or employees mayown or have positions in securities of the company(ies) covered in this report or any securities related thereto and may from time to time addto or dispose of, or may be interested in, any such securities. Further, BOCOM International Securities Ltd, its affiliates and its relatedcompanies may do and seek to do business with the company(ies) covered in this report and may from time to time act as market maker orhave assumed an underwriting commitment in securities of such company(ies), may sell them to or buy them from customers on a principalbasis and may also perform or seek to perform investment banking, advisory, underwriting, financing or other services for or relating to suchcompany(ies) as well as solicit such investment, advisory, financing or other services from any entity mentioned in this report. In reviewingthis report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts ofinterest.The information contained in this report is prepared from data and sources believed to be correct and reliable at the time of issue of thisreport. This report does not purport to contain all the information that a prospective investor may require and may be subject to latedelivery, interruption and interception. BOCOM International Securities Ltd does not make any guarantee, representation or warranty,express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in thisreport and accordingly, neither BOCOM International Securities Ltd nor any of its affiliates nor its related persons shall not be liable in anymanner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits anddamages) of any reliance thereon or usage thereof.This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst BOCOMInternational Securities Ltd’s clients generally and does not have regard to the specific investment objectives, financial situation and theparticular needs of any specific person who may receive this report. The information and opinions in this report are not and should not beconstrued or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or otherfinancial instruments thereof.The views, recommendations, advice and opinions in this report may not necessarily reflect those of BOCOM International Securities Ltd orany of its affiliates, and are subject to change without notice. BOCOM International Securities Ltd has no obligation to update its opinion orthe information in this report.Investors are advised to make their own independent evaluation of the information contained in this research report, consider their ownindividual investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to thelegal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company (ies) covered inthis report. The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors.This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in anylocality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to any law, regulation,rule or other registration or licensing requirement.BOCOM International Securities Ltd is a wholly owned subsidiary of Bank of Communications Co Ltd.Download our reports from Bloomberg: BOCM〈enter〉 7

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