Our target price for Alibaba of HK$165 is based on 10x P/E on FY2026E Taobao Tmall Business Group net profit, 5x P/S on FY2026E Cloud Intelligence Group revenue, 2.0x P/S on consolidated business segment ex Taobao Tmall, Cloud and N+business, and values N+business based on market cap for Alibaba Health and others (1.0x P/S multiple) with 30% holdco discount. Our target multiples are benchmarked against comps. We also assign a 30% discount to net cash position, in-line with our SOTP for other internet peers. Our SOTP comes to HK$165.

Key downside risks that could prevent the shares from reaching our target price include: (i) failure in executing its new retail strategy; ii) investment spend and margins pressure become worse than expected; iii) slowdown of user traffic and online GMV and losing appeal to brands & merchants; iv) integration risks for newly acquired entities; v) slowdown of the Chinese and global economies and overhang of US-China or other trade disputes; and vi) regulatory risks on poor product quality and integrity of merchants.