March quarter 3% YoY topline and RMB16.4bn adj. EBITDA missed consensus by 1% and 32% respectively. Accelerated +38% YoY cloud revenue fueled by +40% YoY external customers with over 30% AI cloud contribution (RMB9bn) impressed the market. We deem the Co. committed to invest hyperscale AI budget, develop multi AI models, launch agentic AI across scenarios, accelerate various AI cloud monetisations and integrate AI capabilities into core transaction ecosystems. Leveraging full stack AI capabilities, we expect sustainable cloud profitable growth with robust high quality revenue streams facilitated by multiple catalysts in coming years. Maintain BUY and SOTP TP unchanged at US$187.0/ HK$182.0.
Key Factors for Rating
Committed AI investments with accelerated scalable high quality cloud streams on full stack AI capabilities; QC monthly UE turn positive in certain FY27 months. We expect Co. to be committed in investing in AI + cloud, developing diverse AI models, embracing agentic AI evolution, accelerating AI cloud various monetisation channels and integrating AI capabilities into core transaction ecosystems. Co. continues to prioritise cloud revenue share expansion over margin expansion, which we believe cloud GPM expansion naturally occurs in recent quarters driven by price increase, various monetisations, revenue mix shift, improved inference chips utilisation efficeincy and increasing T-head deployment. Furthermore, apart from 5-year US$100bn external cloud revenue target in FY2031, Co. lists below numeric cloud achievements including i) accelerated external cloud revenue of over 40% in coming quarters; ii) over 50% of external cloud revenue contributed by AI in next year; iii) MaaS ARR reach over RMB10bn by June 2026 quarter and RMB30bn by end CY2026 from RMB8bn currently; and iv) cloud gpm expansion driven by abovementioned factors. For QC, UE optimisation is prioritised on stable share and Co. targets to achieve positive UE in certain FY2027 months with over half loss narrowing in FY2027-28. Thus, we lower our FY2027-28E topline estimates by 3% to mainly reflect lower CMR revenue forecasts mainly due to new accounting net revenue recognition of marketing programme and UE optimised prioritisation of QC. While we increase our AI related investments despite increasing cloud profitability projections, thus primarily leading to our decreasing bottom line estimates. We introduce FY2029E forecasts.
4QFY26 missed; Accelerated Cloud Momentum. Total revenue grew 3% YoY to RMB243.4bn, -1%/ -2% below consensus/ BOCIe. Core China eC CMR continued to grow at 1% YoY (+8% YoY like-for-like basis excluding contra rev impact). Quick commerce revenue delivered +57% YoY. Cloud revenue remained robust at accelerated 38% YoY with external cloud revenue rise continuing to accelerate to 40% YoY with AI related revenue contributing 30% of external cloud revenue (RMB9.0bn). Customers for MaaS ‘Model Studio’ grew by eight fold YoY as of Mar 2026. Adj. EBITA decreased by -84% YoY to RMB5.1bn, with cloud adj. EBITA margin stably expanding to 9.1%. RMB1.5bn adj. net profit attributable miss street expectation by 89%, implying underperformed 0.6% adj. NPM (vs. 5.8% consensus). Capex was RMB26.9bn.
Key Risks for Rating
Downside: i) intensified competition; ii) weak macro and online consumption sentiments; iii) underperformed synergies brought by quick commerce; iv) AI and cloud growth deterioration; and v) dampened partnerships.
Valuation
Maintain BUY and our SOTP TP was unchanged at US$187.0/HK$182.0, which were derived from i) US$60.0 on 6.0x FY2027E total core commerce adj. EBITA; ii) US$105.0 on 5.0x FY2028E cloud revenue; iii) US$16.0 on 1.0x FY2027E other innovative business revenue; and iv) US$6.0 on share of listed and private investments. This implies 31x/ 23x/ 19x FY2027/28/29E adj. EPADS.