EFTA01473288.pdf

Deutsche Bank Markets Research Rating Buy Asia China Technology Software & Services Reuters BABA.N Bloomberg BABA US Exchange Ticker NYS BABA Price at 6 May 2015 (USD) Price target - 12mth (USD) 52-week range (USD) NASDAQ 100 March Q beat; Mobile crosses the median March quarter beat on higher take rate and ad rev Highlights of the Alibaba March quarter ranged from continued strength in mobile GMV (now larger than desktop) to generally constructive trends in advertising growth and Tmall activity. Although PC growth failed to inspire as merchants rushed to mobile, confident mgmt comments around long-term margin and scope for further mobile improvement lead us to reiterate a Buy. Mobile - now over 1/2 of total GMV - aids recovering advertising rev growth Alibaba's ads growth recovered to 33% YoY (vs 18% in the Dec Q) thanks to a ramp in ads rev on mobile. Mobile GMV as a percentage of overall China retail marketplace GMV surged from 42% in the Dec Q to 51% in the Mar Q, to total RMB304b (+157% YoY, versus DBe of RMB279.) PC-based GMV, however, came in 7% shy of DBe. Mgmt described overall demand (esp mobile GMV) as solid. The co is confident about future mobile monetization, although it will ease as it laps a robust June 2014 An improved Tmall mix helped desktop take rate, an issue in previous qtrs. It is unclear whether the strong expression of Tmall will continue given some one-off Mar Q events. Lifting TP 6% to US$104; Maintain Buy We lift our FY16/17E revs forecast by 3%/4% on higher GMV assumption, and lift FY17E non-GAAP EPADS by 1%. Our target price of US$104 is based on a weighted average of 1) forward CY15E non-GAAP PER (50% weighting), 2) CY15E EV/EBITDA (30% weighting), and 3) a 20% DCF value. TP implies a CY15E PER of 36 (vs prior 38x), a PEG of 1.1x (unchanged) against a CY15-17 CAGR of 33% (vs prior 33.2%). Key risks: lower mobile/PC take rate, lower GMV growth, competition on mobile. Alan Hellawell III Research Analyst (+852) 2203 6240 alan.hellawell@db.com EFTA01473288 Vivian Hao Research Analyst (+852) 2203 6241 vivian.hao@db.com Key changes Price target Sales (FYE) Op prof margin (FYE) Net profit (FYE) Source: Deutsche Bank Price/price relative 100 110 120 70 80 90 9/14 Alibaba NASDAQ 100 (Rebased) Forecasts And Ratios Year End Mar 31 Sales (CNYm) EBITDA (CNYm) Reported NPAT (CNYm) Reported EPS FD(CNY) DB EPS FD(CNY) OLD DB EPS FD(CNY) % Change DB EPS growth (%) PER (x) EV/EBITDA (x) DPS (net) (CNY) Yield (net) (%) Performance (%) Absolute 2014A 2015A 2016E 2017E 2018E 52,504.0 76,204.0 101,997.4 135,293.3 171,735.3 26,303.0 25,029.6 35,582.0 53,185.6 72,058.3 23,076.0 23,365.5 27,483.7 43,328.0 60,229.1 16.37 24.06 23.81 1.0% 34.7 EFTA01473289 20.6 18.2 0.00 0.0 9.90 11.80 11.80 0.0% 105.0 0.00 9.27 12.76 12.61 1.2% 8.1 46.7 53.7 0.00 0.0 10.51 17.86 17.91 -0.3% 40.0 27.8 29.0 0.00 0.0 26.4 16.3 12.3 0.00 0.0 Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment EFTA01473290 decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015. NASDAQ 100 Source: Deutsche Bank 22.30 30.40 lm 3m 12m -6.6 3.6 23.1 3/15 Ross Sandler Research Analyst (+1) 415 262-2028 ross.sandler@db.com 80.00 104.00 119.15 - 79.54 4,380 Company Alibaba Date 8 May 2015 Results 98.00 to 104.00 t t 99,264 to 101,997 31.4 to 31.5 t 28,144.8 to 27,483.7 1 6.1% 2.8% 0.5% -2.3% -2.2 0.7 EFTA01473291 8 May 2015 Software & Services Alibaba Model updated:07 May 2015 Running the numbers Asia China Software & Services Alibaba Reuters: BABA.N Buy Price (6 May 15) Target Price 52 Week range Market Cap (m) Company Profile Founded in 1999, Alibaba leads the China retail market through Taobao (the largest online shopping platform in China based on GMV),Tmall (the largest 3rd party platform for retailers/brands in terms of GMV) and Juhuasuan (a leading China group buying platform). The company caters to global wholesale market through Alibaba.com and China wholesale market through 1688.com. Alibaba also serves the global consumer market place via. AliExpress and also provides cloud computing services such as data mining, processing and storage. Price Performance 100 110 120 70 80 90 Sep 14 Alibaba Margin Trends 28 32 36 40 44 48 52 13 14 Growth & Profitability 20 40 60 80 0 EFTA01473292 13 Solvency 20 -80 -60 -40 -20 0 13 14 15 Net debt/equity (LHS) Alan Hellawell III +852 2203 6240 Page 2 16E 17E 18E Net interest cover (RHS) 14 15 16E Sales growth (LHS) 17E 18E ROE (RHS) 100 20 40 60 80 0 Key Company Metrics Sales growth (%) 10 20 30 40 50 0 DB EPS growth (%) EBITDA Margin (%) EBIT Margin (%) Payout ratio (%) ROE (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x) Source: Company data, Deutsche Bank estimates 72.4 EFTA01473293 141.4 34.0 31.1 0.0 40.0 7.3 3.1 -8.9 7.0 52.1 105.0 50.1 47.5 0.0 91.8 9.1 3.6 7.6 45.6 45.1 8.1 32.8 29.7 0.0 26.4 10.0 3.4 -29.2 nm 33.8 40.0 34.9 31.5 0.0 17.3 7.5 2.2 -47.4 nm 32.6 34.7 39.3 35.8 0.0 20.5 6.5 1.9 -60.1 nm 26.9 26.4 EFTA01473294 42.0 38.6 0.0 21.3 6.0 1.8 -69.0 nm 15 EBITDA Margin 16E 17E EBIT Margin 18E Dec 14 Mar 15 NASDAQ 100 (Rebased) Fiscal year end 31-Mar Financial Summary DB EPS (CNY) Reported EPS (CNY) DPS (CNY) BVPS (CNY) Bloomberg: BABA US USD 80.00 USD 104.00 USD 79.54 - 119.15 EURm 167,983 USDm 190,720 Weighted average shares (m) Average market cap (CNYm) Enterprise value (CNYm) Valuation Metrics P/E (DB) (x) P/E (Reported) (x) P/BV (x) FCF Yield (%) Dividend Yield (%) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) Income Statement (CNYm) Sales revenue Gross profit EBITDA Depreciation Amortisation EBIT Net interest income(expense) Associates/affiliates Exceptionals/extraordinaries EFTA01473295 Other pre-tax income/(expense) Profit before tax Income tax expense Minorities Other post-tax income/(expense) Net profit DB adjustments (including dilution) DB Net profit Cash Flow (CNYm) Cash flow from operations Net Capex Free cash flow Equity raised/(bought back) Dividends paid Net inc/(dec) in borrowings Other investing/financing cash flows Net cash flow Change in working capital Balance Sheet (CNYm) Cash and other liquid assets Tangible fixed assets Goodwill/intangible assets Associates/investments Other assets Total assets Interest bearing debt Other liabilities Total liabilities Shareholders' equity Minorities Total shareholders' equity Net debt 2013 5.76 3.52 0.00 4.6 2,294 na na na na 0.00 na na nm nm nm 34,517 25,473 11,731 EFTA01473296 675 305 10,751 -1,533 -6 0 894 10,112 1,457 117 -128 8,404 5,348 13,752 14,476 -2,202 12,274 -28,349 0 26,932 2,682 13,539 5,964 34,083 3,808 13,523 5,341 7,031 63,786 33,101 19,639 52,740 10,509 537 11,046 -982 2014 11.80 9.90 0.00 18.3 2,175 2015 12.76 9.27 0.00 56.6 2,425 2016E 17.86 10.51 EFTA01473297 0.00 71.9 2,521 2017E 24.06 16.37 0.00 95.0 2,552 968,085 2018E 30.40 22.30 0.00 123.8 2,606 na 1,444,860 1,182,321 1,182,321 1,182,321 na 1,343,168 1,031,757 886,373 na na 0.00 na na nm nm nm 52,504 40,159 26,303 1,024 359 24,920 -547 -203 0 2,429 26,802 3,196 88 -239 23,076 4,446 27,522 26,379 -4,776 21,603 -3,425 0 12,789 -28,318 EFTA01473298 2,649 4,682 37,966 5,581 15,359 30,340 22,303 111,549 41,075 29,656 70,731 39,739 1,079 40,818 3,109 46.7 64.3 9.11 2.9 0.0 17.6 53.7 59.3 76,204 52,510 25,030 140 2,245 22,645 6,705 -1,590 0 2,486 31,836 6,416 59 -405 23,366 8,788 32,154 49,288 -7,620 41,667 62,319 0 23,000 -61,524 65,462 8,151 98,507 10,992 EFTA01473299 44,589 62,377 11,387 227,852 58,055 31,422 89,477 137,237 1,138 138,375 -40,452 27.8 47.2 6.97 3.6 0.0 10.1 29.0 32.1 101,997 72,167 35,582 716 2,715 32,151 1,360 -1,293 0 4,453 37,964 9,122 65 0 27,484 19,236 46,720 52,463 -7,650 44,813 0 0 0 -2,040 42,773 2,248 141,280 15,211 41,874 65,297 9,774 273,437 EFTA01473300 54,811 36,181 90,992 181,242 1,203 182,445 -86,469 20.6 30.3 5.28 4.9 0.0 7.2 18.2 20.0 135,293 97,558 53,186 2,099 2,592 48,495 2,843 -1,422 0 6,778 58,116 13,295 71 0 43,328 20,347 63,675 71,402 -8,794 62,608 0 0 -30,000 -2,706 29,902 2,965 171,182 19,314 39,282 69,139 11,508 310,426 24,811 42,015 66,826 242,325 EFTA01473301 1,274 243,599 -146,371 16.3 22.2 4.05 6.2 0.0 5.2 12.3 13.4 171,735 125,610 72,058 3,921 1,898 66,239 4,807 -1,299 0 9,044 80,090 18,484 79 0 60,229 21,882 82,111 90,850 -10,304 80,546 0 0 0 -3,435 77,112 2,842 248,294 23,799 37,384 73,817 13,405 396,699 24,811 47,998 72,809 322,538 1,353 323,891 -223,483 alan.hellawell@db.com EFTA01473302 Deutsche Bank AG/Hong Kong EFTA01473303 8 May 2015 Software & Services Alibaba CNY season delivers surprise A quick review of the numbers A beat on the bottom, while GMV in-line Alibaba delivered March Q total GMV of RMB600b (+40%YoY/-24%QoQ), 0.3% higher than DBe. Blended take rate was 2.17% (flat YoY), some 7bps higher than DBe Mobile take rate was 1.73% (75bps YoY), 4bps higher than DBe. PC take rate meanwhile was 2.63% (flat YoY), or roughly 17bps higher than DBe. Total revenue was RMB17.4b (+45%YoY/-33%QoQ), 6%/3% ahead of DBe/cons. Non-GAAP EBITDA was RMB8.6b (+25%YoY/-43%QoQ), 9% higher than DBe and 1% lower than the Street. Non-GAAP operating income was RMB7.2b (+13%YoY/-48%QoQ), 9% higher than DBe and 6% short of consensus. Non-GAAP net income was RMB7.7b (+16%YoY/-41%QoQ), 36%/11% higher than DBe/consensus. If we adjust for a surge in interest and investment income to RMB1.8b (vs DBe RMB0.4b), non-GAAP net income excluding this effect would have been 11% higher than DBe. Tmall stages a comeback thanks to promotions, better CNY season preparation by large storefronts Of some of the more salient trends noted from the March quarter, Tmall GMV surged some 62% YoY (despite being down 25% QoQ), an improvement from 60% YoY growth in Dec, 2014. Recall that Tmall moreover boasts a higher take-rate, which we believe exceeds 5%. Taobao GMV meanwhile missed DBe by 2 5%. The disparate trajectories largely relate to how the different types of merchant on the two platforms react differently to Chinese New Years. The smaller C2C sellers on Taobao, facing greater financial constraint, will often pull back inventory purchases and delay stocking starting from two weeks before Chinese New Years, and will often not resume these activities until two weeks after CNY. Taobao inventory purchasing thus picked up only in 2H March. Meanwhile, the large sellers on Tmall tend to boast much more flexible cash management skills, and thus do not go through the same CNY-related gyrations that Taobao sellers do. CNY logistics-enhancement, barcode scanning, also leads to strong Tmall Q Moreover, we note that Tmall partnered in an unprecedented way with logistics companies in order to accommodate much larger volumes during the holiday season, thus likely contributing to the Tmall GMV surprise upside. Among other one-off's that may have fueled a strong quarter of Tmall GMV, the company rolled out promotions in March which, for instance, encouraged consumers to scan barcodes to purchase goods. These promotions worked particularly well in the purchase of groceries, which are largely sold on Tmall. Deutsche Bank AG/Hong Kong Page 3 EFTA01473304 8 May 2015 Software & Services Alibaba Although management mentioned on multiple occasions throughout the quarterly results call that it has no intention of prioritizing one retail ecommerce platform over the other, we expect a significant amount of innovation around the Tmall platform this year. New Tmall mobile app planned We for instance expect Alibaba to release a new Tmall mobile app later this year. The app is being designed to "give a separate shopping journey" to the mobile consumer. When looking back over the last couple of years, development and optimization of the Taobao mobile app instead seemed to been a top priority. Constructive spin on tighter Tmall criteria Management reflected positively on the impact of new merchant entry standards, which it rolled out in early-March in order to improve the quality of merchants on the Tmall platform. Related to this, the company claims that its focus is not on growing the number of merchants, but on growing samemerchant GMV. Improving consumer confidence around merchant pedigree as a result of tightened storefront criteria should support the aim of increasing same-store growth. Mgmt bullish on mobile monetization longer term Management expects mobile monetization rates (1.73% in Mar Q) to eventually overtake desktop take rates (2.63% in Mar Q.) Leadership predicates this view on three main factors: IIMore consumers are shifting to mobile than the company had anticipated (as evidenced by 77% YoY MAU growth to 289m.) IIMobile boasts demonstrably higher engagement. Smartphone owners tend to use their devices more frequently, and access, for instance Taobao Mobile, more frequently than they do the desktop version. The company has specifically noticed a much higher incidence of impulse purchases, which drives up the frequency of purchase. IIThere is "higher value" associated with buying, and selling, on mobile. By incorporating location-based (LBS) data, and more extensive buyer behavior data, mobile shopping can be more lucrative than desktopbased e-commerce. The company on the call also made reference to a set of new features offered to the seller. An Alibaba seller now can manage his/her entire storefront through mobile, thus deepening his/her embrace of mobile commerce. The other side of the coin: PC disappoints As mentioned elsewhere, PC GMV of RMB296b in the Q missed DBe by 7%. PC-derived revenues of RMB7.8b meanwhile fell short of DBe by 0.4%. The implied take-rate thus fell to 2.63% in the quarter, down from 3.23% in the Dec Q, and 2.63% in March, 2014. While desktop monetization actually surprised EFTA01473305 us on the upside mildly, largely due to the aforementioned strength in the (higher take-rate) Tmall side of the business, merchants have clearly seen the shift toward mobile, and are porting their bidding budgets for keywords, purchases of banner ads and other spend, to mobile. Management mentioned that PC-based CPC's declined, while search traffic on PC evidently went flat. Marketing revenues from PC were thus down. Page 4 Deutsche Bank AG/Hong Kong EFTA01473306 8 May 2015 Software & Services Alibaba Management indicated that PC-based GMV could possibly to shrink to as little as 30% of total China retail marketplace GMV as we exit the year. Entertainment a vertical focus One of the company's main vertical focuses this year will be entertainment. Management specifically referenced initiatives around: content, e.g. Huashu, Huayu, Enlight etc set up a "content pool" or Ali Pictures (the company is a 60% shareholder) distribution through over-the-top apps, and derivative offerings (crowd funding etc) Management appointment The company also announced that Daniel Zhang, currently COO of Alibaba Group with 8 years of experience at the company, would replace Jonathan Lu as company CEO. Given Alibaba's reputation for mgmt rotation, and with Mr. Zhang's broad experience at the co, we view the transition as positive. Deutsche Bank AG/Hong Kong Page 5 EFTA01473307 8 May 2015 Software & Services Alibaba Revision of estimates Based on the results of the FY 2015 40 and our discussions with senior management, we change our forecasts as follows: IIWe lift our FY16/17E China retail GMV assumption by 2%/2% IIWe lift our FY16/17E revenues forecast by 3%/4% IIWe lift FY16/17E non-GAAP operating income by 3%/5%. IIWe increase FY16/17E non-GAAP EPADS by 0%/1% respectively. Figure 1: Revision of estimates YE 31 Dec FY2015 Figures in RMB,mn GMV(in RMB bn) Net Revenue Gross profit EBITDA (non GAAP) EBIT (GAAP) EBIT (non GAAP) PBT (GAAP) Net income (GAAP) Net income (Non-GAAP) EPADS (GAAP) Diluted (RMB) EPADS (Non GAAP) Diluted (RMB) Margin analysis (%) Gross margin EBITDA margin EBIT margin (GAAP) EBIT margin (non-GAAP) Net margin (GAAP) Net margin (non GAAP) YoY % Revenue Gross profit EBIT (GAAP) EBIT (Non-GAAP) Net income (GAAP) Net income (Non-GAAP) EPADS (GAAP) diluted EPADS (Non GAAP) diluted 2,444 76,204 EFTA01473308 52,370 40,127 22,645 35,848 31,836 23,366 33,245 9.43 13.19 68.7% 52.7% 29.7% 47.0% 30.7% 43.6% 45% 34% -9% 23% 1% 20% -6% 11% 3,274 3,329 99,264 69,047 53,283 31,148 47,145 36,958 28,145 47,005 101,997 71,451 54,818 32,151 48,672 37,964 27,484 46,785 2016E DB old DB new % change Consensus % delta 2% 3% 3% 3% 3% 3% 3% EFTA01473309 -2% 0% 10.76 17.97 10.51 17.88 69.6% 70.1% 53.7% 53.7% 31.4% 31.5% 47.5% 47.7% 28.4% 26.9% 47.4% 45.9% 30% 32% 38% 32% 20% 41% 14% 36% 34% 36% 42% 36% 18% 41% 11% 36% -2% 0% 0.5% 0.1% 0.1% 0.2% -1.4% -1.5% 4% 5% 4% 4% -3% -1% -3% -1% 102,500 71,457 54,298 36,965 37,717 40,940 31,291 EFTA01473310 45,520 $12.02 $17.38 na 0% 0% 1% -13% 29% -7% -12% 3% -13% 3% 69.7% 0.3% 53.0% 0.8% 36.1% -4.5% 36.8% 10.9% 30.5% -3.6% 44.4% 1.5% 35% 36% -1% 0% 63% -21% 5% 34% -16% 37% 27% -16% 32% 4% 31% 4% 3,998 4,073 130,422 91,494 70,635 45,788 63,364 55,408 42,852 63,184 135,293 95,459 73,533 48,495 66,250 58,116 43,328 63,746 EFTA01473311 2017E DB old DB new % change Consensus % delta 2% 4% 4% 4% 6% 5% 5% 1% 1% 134,625 94,080 72,118 52,454 53,475 59,008 46,103 61,898 16.19 23.87 16.37 24.09 70.2% 70.6% 54.2% 54.4% 35.1% 35.8% 48.6% 49.0% 32.9% 32.0% 48.4% 47.1% 31% 33% 47% 34% 52% 34% 51% 33% 33% 34% 51% 36% 58% 36% 56% 35% 1% 1% 0.4% 0.2% 0.7% EFTA01473312 0.4% -0.8% -1.3% 1% 1% 4% 2% 5% 2% 5% 2% $17.27 $23.22 na 0% 1% 2% -8% 24% -2% -6% 3% -5% 4% 69.9% 0.7% 53.6% 0.8% 39.0% -3.1% 39.7% 9.2% 34.2% -2.2% 46.0% 1.1% 31% 32% 42% 42% 47% 36% 44% 34% 1% 2% 9% -6% 10% 0% 12% 1% 4,632 4,677 162,197 114,619 88,388 EFTA01473313 61,389 80,689 75,239 58,006 79,383 171,735 121,689 93,940 66,239 86,223 80,090 60,229 82,189 2018E DB old DB new % change Consensus % delta 1% 6% 6% 6% 8% 7% 6% 4% 4% 173,614 122,398 97,301 67,883 74,381 86,794 68,852 89,536 21.67 29.65 22.50 30.70 70.7% 70.9% 54.5% 54.7% 37.8% 38.6% 49.7% 50.2% 35.8% 35.1% 48.9% 47.9% 24% 25% 34% 27% 35% 26% 34% 24% EFTA01473314 27% 27% 37% 30% 39% 29% 37% 27% 4% 4% 0.2% 0.2% 0.7% 0.5% -0.7% -1.1% 3% 2% 3% 3% 4% 3% 4% 3% $25.69 $32.42 na -1% -1% -3% -2% 16% -8% -13% -8% -12% -5% 70.5% 0.4% 56.0% -1.3% 39.1% -0.5% 42.8% 7.4% 39.7% -4.6% 51.6% -3.7% 29% 30% 29% 39% -2% -3% 7% -9% EFTA01473315 49% -10% 45% -16% 49% -11% 40% -12% Source: Deutsche Bank Valuation and risks Valuation Our target price of US$104 is based on a weighted average of 1) forward CY15E non-GAAP PER (50% weighting), 2) CY15E EV/EBITDA (30% weighting), and 3) a 20% DCF value. TP implies a CY15E PER of 36 (vs prior 38x), a PEG of 1.1x (unchanged) against a CY15-17 CAGR of 33% (vs prior 33.2%). Downside risks IIMounting competitive pressures from global/local e-commerce platforms and off-line players f Failure to maintain sound relationships with participants in the cosystem 1 Inability to develop efficient technological platforms and to innovate Failure to monitor fraudulent transactions on the platform which can result in slowdown in user base growth and activity Page 6 Deutsche Bank AG/Hong Kong EFTA01473316 8 May 2015 Software & Services libaba Inability to efficiently monetize mobile e-commerce opportunities Inability to correctly monitor 3rd party service providers which can result in growing user dissatisfaction Inability to successfully integrate invested entities into Alibaba's ecosystem Deutsche Bank AG/Hong Kong Page 7 EFTA01473317 8 May 2015 Software & Services Alibaba Appendix 1 Important Disclosures Additional information available upon request Disclosure checklist Company Alibaba Ticker BABA.N Recent price* 80.00 (USD) 6 May 15 Disclosure 1,7,8,14 *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. Important Disclosures Required by U.S. Regulators Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes. 1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees. 7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 8. Deutsche Bank and/or its affiliate(s) expects to receive, or intends to seek, compensation for investment banking services from this company in the next three months. 14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year. Important Disclosures Required by Non-U.S. Regulators Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes. 1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees. 7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year. For disclosures pertaining to recommendations or estimates made on EFTA01473318 securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=BABA.N Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Alan Hellawell III Page 8 Deutsche Bank AG/Hong Kong EFTA01473319 8 May 2015 Software & Services Alibaba Historical recommendations and target price: Alibaba (BABA.N) (as of 5/6/2015) 0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 Sep 14 1. 2. 29/10/2014: Previous Recommendations 1 2 3 4 Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating Current Recommendations Buy Hold Sell Not Rated Suspended Rating *New Recommendation Structure as of September 9,2002 Dec 14 Date Upgrade to Buy, Target Price Change USD112.70 04/11/2014: Buy, Target Price Change USD112.10 Equity rating key Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. EFTA01473320 Notes: 1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period 3 4. Mar 15 29/01/2015: Buy, Target Price Change USD105.10 11/03/2015: Buy, Target Price Change USD98.00 Equity rating dispersion and banking relationships 100 150 200 250 300 350 400 450 50 0 Buy Companies Covered Hold 52 % 39 % 23 % 22 % 9% 18 % Sell Cos. w/ Banking Relationship Asia-Pacific Universe Deutsche Bank AG/Hong Kong Page 9 Security Price EFTA01473321 8 May 2015 Software & Services Alibaba Regulatory Disclosures 1.Important Additional Conflict Disclosures Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing. 2.Short-Term Trade Ideas Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com. Page 10 Deutsche Bank AG/Hong Kong EFTA01473322 8 May 2015 Software & Services Alibaba Additional Information The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources believed to be reliable, Deutsche Bank makes no representation as to its accuracy or completeness. Deutsche Bank may consider this report in deciding to trade as principal. It may also engage in transactions, for its own account or with customers, in a manner inconsistent with the views taken in this research report. Others within Deutsche Bank, including strategists, sales staff and other analysts, may take views that are inconsistent with those taken in this research report. Deutsche Bank issues a variety of research products, including fundamental analysis, equity-linked analysis, quantitative analysis and trade ideas. 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Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise to pay fixed or variable interest rates. For an investor who is long fixed rate instruments (thus receiving these cash flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation (including changes in assets holding limits for different types of investors), changes in tax policies, currency convertibility (which may constrain currency conversion, repatriation of profits and/or the liquidation of positions), and settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to FX depreciation, or to specified interest rates — these are common in emerging markets. It is important to note that the index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is also important to acknowledge that funding in a currency that differs from the currency in which coupons are denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options in addition to the risks related to rates movements. Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk. The appropriateness or otherwise of these products for use by investors is dependent on the investors' own circumstances including their tax position, their regulatory environment and the nature of their other assets and liabilities, and as such, investors should take expert legal and financial advice before entering into any transaction similar Deutsche Bank AG/Hong Kong Page 11 EFTA01473324 8 May 2015 Software & Services Alibaba to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be incurred that are greater than the amount of funds initially deposited. Trading in options involves risk and is not suitable for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized Options", at http://www.optionsclearing.com/about/publications/character- risks.jsp. If you are unable to access the website please contact your Deutsche Bank representative for a copy of this important document. Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs, whose values are affected by the currency of an underlying security, effectively assume currency risk. 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