Our target price for Alibaba H-shares of HK$216 is based on 12x P/E on FY2027E Ecommerce Group net profit, 5.5x P/S on FY2027E Cloud Intelligence Group revenue, 3.0x P/S on AIDC Group revenue, 1.5x P/S on all other businesses. 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 fair value comes to HK$216 per H-share.

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.