HSBC Cuts Alibaba Price Target To $124, But Maintains Buy

In a report published Wednesday, HSBC analyst Chi Tsang maintained a Buy rating on

, while reducing the price target from $136 to $124. Alibaba's 1Q results are expected to be hit by the continued suspension of online lottery sales, lower revenue from Juhusuan, in the wake of reduced fees and take rate, and lowered margins due to increased investments in strategic initiatives. The company is now expected to post a 34 percent year on year increase in its 1Q gross mobile merchandise volume or GMV at RMB671billion. The company is expected to report a 32 percent year on year increase in its buyers at 367 million, total revenue growth of 34 percent and non-GAAP EPS of $0.54. Alibaba is expected to make significant investments in FY16. "We see higher investment in 1) mobile Internet services (eg UCWeb, Autonavi); 2) ad network; 3) cloud services; and 4) digital content (set-top boxes and content creation)," analyst Chi Tsang mentioned. In the report HSBC noted, "Further, healthcare and local services are long-term opportunities. Core e-commerce remains a high 50% EBITDA margin business, investing in these projects will pressure margins by 300-500bps this year and keep margins capped for the medium term." "Alibaba, in our view, remains best positioned to capture online shopping growth driven by mobile Internet penetration growth in the rural parts of China due to its dominant eco-system and scalable business model," Tsang added. The adjusted EPS estimates for FY16 and FY17 have been reduced by 12 percent and 9 percent, respectively.