Content. We assume content business net margin at 10%, and value the business at 8x P/E, to reflect the uncertainties of content performance, which give us RMB0.08/share.

Ticketing and tech platform. The ticketing business has higher segment margin, benefiting from Damai’s leadership in offline entertainment business in China. We assume 30% net margin and value the business at 15x P/E, higher than 10-13x trading range of China online ticketing platform, to reflect Damai’s leadership.  

IP merchandising business. We model segment margin (gross profit deducting segment S&M expense) of 30-31%. We estimate 15% net margin and assign 18x P/E and get RMB0.15/s. Our 18x P/E is between the range of China IP merchandising players, at a premium vs Miniso while at a discount with Pop Mart to reflect the smaller size in revenue but leadership in sub-licensing business.  

Net cash. We take a 50% discount on net cash. The 50% discount is inline with our internet company peers to reflect company investment

Our updated target price at HK$0.75, and it implies 16x FY2026E P/E. Maintain Buy/H.

We assign a High Risk rating to Alibaba Pictures to reflect its margin fluctuations mainly due to uncertainties of content investment and production. 

Downside risks that may impede the stock from reaching our target price include: 1) market share pressure in movie ticketing; 2) movie content performance is softer than expected; 3) further intensified competition in the offline entertainment ticketing business, with other players lowering take rate to grab market share; 4) continued soft macro that weighs on entertainment consumption; and 5) content censorship that impacts content launch.