Analysts trim Alibaba Group’s stock price targets by up to 25% after US$41 billion sell-off due to reorganisation snag

At least 16 analysts have reduced their 12-month price targets by 3 per cent to 25 per cent after the stock sell-off last week
Stock price is ‘far below its fair value,’ Jack Ma’s office said in statement last week

Alibaba

Jiaxing Li

Published: 2:00pm, 20 Nov, 2023

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Analysts tracking Alibaba Group Holding have trimmed their price targets for the stock by as much as 25 per cent, driving the consensus average to an all-time low, after China’s biggest e-commerce platform operator altered parts of its business break-up and reorganisation plan.

The stock’s 12-month price target fell 6.2 per cent to HK$124.65 from HK$132.91, with Jefferies, China International Capital Corp (CICC) and Guotai Junan delivering the most aggressive of at least 16 cuts, according to Bloomberg data. The e-commece group last week cancelled a plan to spin off its cloud-computing unit in its quarterly report, triggering a US$41 billion sell-off in New York and Hong Kong.

Jefferies slashed its price target by 23 per cent to HK$140 from HK$181 on Friday while maintaining a buy recommendation, after revaluing the sum of all parts in the group’s business. CICC, China’s biggest investment bank, lowered its valuation by 20 per cent to HK$109 while mainland broker Guotai Junan reduced its target by 25.4 per cent to HK$103.

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“The market’s initial response will be negative,” John Choi and Robin Leung, analysts at Daiwa Capital Markets, said after the announcement. “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.”

Analysts who tracked Alibaba’s American depositary shares (ADS) also lowered their 12-month price targets, suppressing the consensus by 8 per cent to US$125.92, according to Bloomberg data. One ADS represents eight ordinary shares. Morgan Stanley led the pack by cutting it to US$110 from US$150.

Alibaba is the owner of the South China Morning Post.

Jack Ma’s office says he is ‘very positive’ about Alibaba despite sell-off

Alibaba rebounded 1.6 per cent to HK$74.45 on Monday, while the broader market climbed 1.9 per cent. The stock plunged 10 per cent in Hong Kong on Friday, the worst sell-off since October last year, compounded by US filings showing founder Jack Ma’s family trusts were planning to reduce their holdings.

The former chairman remains “very positive” on China’s biggest 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 target price cuts, most analysts stuck to their buy recommendations. Other brokers raised their outlook, with China Securities bumping up its 12-month price target by 3.4 per cent to HK$117.98 and China Galaxy boosting its estimate by 1.7 per cent to HK$175.

“Valuation remains attractive,” Charlene Liu, head of internet and gaming research at HSBC, said in a note on Friday. “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.”

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