DCF Studio

    9988.HK · HKG · Consumer Cyclical

    Alibaba Group Holding Limited

    Also onConsensus Drift

    Implied value per share

    HKD 113.05

    Market price

    HKD 109.30

    Implied upside

    +3.4%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · CNY model at 1.1708

    AdjustedReports in CNY, trades in HKD. Modelled in CNY, converted at the end.
    AdjustedCapital expenditure runs at 7.1% of revenue against depreciation of 4.7%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.
    NoteRisk-free rate is an assumption: HKD assumption - no free live source available for this market.

    Current EV/EBITDA of 20.0x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    HKD 113.05+3.4%
    Exit multiple
    HKD 209.70+91.9%
    Market price
    HKD 109.30

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CNY). Outflows negative.

    0bn33bn65bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayCNY
    LineFY27FY28FY29FY30FY31CAGR
    RevenueCNY 1081.2bnCNY 1142.1bnCNY 1206.3bnCNY 1274.2bnCNY 1345.8bn+5.6%
    EBITCNY 123.3bnCNY 130.2bnCNY 137.6bnCNY 145.3bnCNY 153.5bn+5.6%
    NOPATCNY 103.0bnCNY 108.8bnCNY 114.9bnCNY 121.3bnCNY 128.2bn+5.6%
    Add depreciation & amortisationCNY 51.3bnCNY 54.2bnCNY 57.3bnCNY 60.5bnCNY 63.9bn+5.6%
    Less capital expenditureCNY -77.0bnCNY -81.3bnCNY -85.9bnCNY -90.7bnCNY -95.8bn+5.6%
    Less increase in working capitalCNY -25.0bnCNY -26.4bnCNY -27.9bnCNY -29.5bnCNY -31.2bn+5.6%
    Free cashflow to firmCNY 52.3bnCNY 55.2bnCNY 58.3bnCNY 61.6bnCNY 65.1bn+5.6%
    Discount factor0.96530.89960.83830.78120.7280-
    Present valueCNY 50.5bnCNY 49.7bnCNY 48.9bnCNY 48.1bnCNY 47.4bn-1.6%
    Present Value Of The ForecastCNY 244.6bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate3.20%HKD assumption - no free live source available for this market (assumption)
    Equity risk premium7.00%Market assumption
    Beta0.665Reported 0.500, pulled toward 1.0 (Blume)
    Cost of equity7.86%Risk-free + beta x equity risk premium
    Cost of debt3.70%Interest expense / average total debt
    Market capitalisationCNY 2173.4bn88.5% of capital
    Total debtCNY 281.7bn11.5% of capital, book value as a proxy
    Tax rate16.5%Effective, capped at statutory
    WACC7.31%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareCNY 96.56

    87% of EV

    Forecast FCFF, final year
    CNY 65.1bn
    Capex at depreciation, working capital in reinvestment
    CNY 146.2bn
    Less reinvestment at g/ROIC (30.5% of NOPAT)
    CNY -44.5bn
    Capitalised
    CNY 101.6bn
    ROIC (reported)
    8.2%
    Terminal value, undiscounted
    CNY 2166.8bn
    Terminal value, discounted
    CNY 1577.5bn
    Enterprise value
    CNY 1822.1bn
    Less net debt
    CNY -35.2bn
    Equity value
    CNY 1857.3bn

    Exit at 20.0x EBITDA

    Value per shareCNY 179.11

    93% of EV

    Terminal value, undiscounted
    CNY 4347.8bn
    Terminal value, discounted
    CNY 3165.4bn
    Enterprise value
    CNY 3410.0bn
    Less net debt
    CNY -35.2bn
    Equity value
    CNY 3445.2bn

    Spread between methods: 60%.

    Sensitivity

    Value per share (CNY) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.31%146.31155.56167.99185.63212.84
    6.31%114.39118.17122.85128.83136.83
    7.31%93.5594.9496.5698.46100.78
    8.31%79.0879.4079.7280.0480.36
    9.31%69.5069.7770.0470.3270.59

    Outlined: this model. Green text: above today's price of 93.35. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year5.6%4.6%-1.0pp
    EBIT margin11.4%11.0%-0.4pp
    Discount rate7.3%7.5%+0.2pp
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    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.