Alibaba Group Holding Ltd. (BABA): Cloudy Skies Will Dissipate:: Alibaba Group Holding Limited,
Alibaba Stock Still Has Lots of Room to
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Alibaba Stock Still Has Lots of Room to Rise. Analyst Sees a 44% Gain.
By: Barron’s | December 9, 2019
Citigroup’s Alice Yap initiated coverage of Alibaba’s Hong Kong shares with a Buy rating and a target price of 284 Hong Kong dollars.
Citigroup’s Alice Yap initiated coverage of Alibaba’s Hong Kong shares with a Buy rating and a target price of 284 Hong Kong dollars..
The Chinese e-commerce giant Alibaba Group Holding still has huge room to grow, and both its Hong Kong stock and American depositary shares are set to fly, according to Citigroup analyst Alicia Yap.
The back story. In one of the largest stock offerings of 2019, Alibaba raised $13 billion through a listing in Hong Kong on Nov. 26, making it possible to trade the company in Asia, rather than only via American depositary shares, or ADS, on the New York Stock Exchange. Only the initial public offering of Saudi Aramco last week raised more, bringing in a reported $29.4 billion.
Despite the protests and violence in Hong Kong, a slowing Chinese economy, and the U.S.-China trade war, there was strong demand for Alibaba’s new shares. Investors remained bullish on China’s largest internet retailer.
The Hong Kong shares (ticker: 9988.HK) rose 12.2% from the listing price of 176 Hong Kong dollars (US$22.48) to HK$197.50 as of the close of trading on Friday. Alibaba’s ADS (BABA)—traded on the NYSE since 2014—have rallied 47% year to date versus the S&P 500’s 26% gain.
What’s new. In a Monday note, venture capital Citigroup’s Yap initiated coverage of Alibaba’s Hong Kong shares with a Buy rating and target price of HK$284. That is about 44% higher than last Friday’s close.
Yap also raised her target price for Alibaba’s ADS—each representing eight ordinary shares in Hong Kong—to US$284 from the previous US$230. The depositary shares closed at US$201.89 on Friday.
“Evolving from a ‘data-technology-driven ecosystem’ that synergizes business units within the Ali family, Ali management three years ago envisioned a path to the ‘Ali Digital Economy’ with the announcement of five breakthrough trends,” she wrote, “Three years later, as we head into 2020, Ali has extended its commerce addressable market to New Retail, and is working with industry partners to transform and digitize their operations via the Alibaba Business Operating System (ABOS).”
Yap says Alibaba can leverage its technology and other innovations to continue achieving its near- and long-term visions. The company has been focusing on opportunities in globalization and domestic consumption, as well as the use of big data, powered by cloud computing, in a push to transform the digital economy in China.
Within the next five years, Alibaba is looking to serve more than one billion Chinese consumers per year and facilitate more than $10 trillion yuan ($1.42 trillion) of consumption. The company aims to serve two billion consumers a year world-wide by 2036 and create 100 million jobs.
Looking ahead. Yap forecasts that Alibaba will increase its total revenue by 36.5% in fiscal 2020 to reach 514.5 billion yuan, or US$73.1 billion. Earnings before interest, taxes, depreciation, and amortization are expected to increase by 32% to 161.4 billion yuan.
She valued the company at 30 times its expected earnings for fiscal 2021, plus Alibaba’s 33% equity stake in Ant Financial Services Group, formerly known as Alipay.