Analysts monitoring Alibaba Group Holding have revised down their price targets for the stock by up to 23%, resulting in an all-time low consensus average. This adjustment follows changes made by China's largest e-commerce platform operator to its business break-up and reorganization plan. The 12-month price target for the stock declined by 5.3% to HK$125.89 from HK$132.91, with Jefferies and China International Capital Corp (CICC) delivering the most significant cuts among at least 14 reductions, according to Bloomberg data.
Jefferies reduced its price target by 23% to HK$140 from HK$181 while maintaining a buy recommendation, after revaluing the sum of all parts in the group's business. CICC, China's largest investment bank, lowered its stock valuation by 20% to HK$109 from HK$137. Alibaba's decision to cancel a plan to spin off its cloud-computing business in its quarterly report triggered a US$41 billion sell-off in New York and Hong Kong.
Analysts at Daiwa Capital Markets noted, "The market’s initial response will be negative. To drive a re-rating on the stock, we need to see an aggressive shareholder return enhancement, either share buyback or dividend, which we believe will be funded by offloading some of its non-core assets."
Despite the target price cuts, most analysts maintained their buy recommendations. Alibaba's stock rebounded 1.4% to HK$74.30 in recent trading on Monday, while the broader market climbed 0.9%. On Friday, the stock experienced a 10% plunge in Hong Kong, the worst sell-off since October last year. This was exacerbated by US filings revealing founder Jack Ma's family trusts were planning to reduce their holdings.
Jack Ma remains "very positive" about China's largest technology company, according to a statement issued by his office on Friday, adding that the stock price is "far below its fair value." Despite the valuation concerns, some brokers raised their outlook, with China Securities increasing its 12-month price target by 3.4% to HK$117.98 and China Galaxy boosting its estimate by 1.7% to HK$175.
"Valuation remains attractive," said Charlene Liu, head of internet and gaming research at HSBC. "However, the stock may lack catalysts to re-rate in the near term. The market is likely waiting for management to deliver its promise to shorten the turnaround timeline for [unprofitable] businesses."
By fLEXI tEAM