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Alibaba Group (BABA US / 9988 HK) – Headwinds in China commerce while committing to strategic initiatives  

While expectations were not high going into the print, Alibaba’s 2QFY22 scorecard was even softer than feared. Customer management revenue (CMR) growth of 3% YoY was somewhat underwhelming, and slowed down notably from the 14% YoY clocked last quarter. Alibaba is now guiding for FY22 revenue growth of 20-23% YoY, which at the mid-point represents a 5.4ppts drop below consensus. We understand that this is based on  management’s GMV growth expectations, while the softer broader macro environment and consumption trends would invariably take its toll, given Alibaba’s position as the largest e-commerce player in China. Encouragingly, we note that management’s preliminary assessment is that PIPL is unlikely to have a material impact on the business, though more time is still needed to make a more concrete assessment. While this set of results are less than inspiring, we believe that the macro-induced weakness in CMR growth is likely cyclical, while the multi-engine approach towards growth that the group is taking makes sense. Still, we remain watchful on the level of investments in the near-term, given the potential drag on adjusted EBITA. Following steep cuts to our estimates and more conservative assumptions, our FV drops from USD256 to USD201 (BABA US) / HKD248 to HKD194 (9988 HK). We continue to see value in the name over the longer-term though patience would be needed in light of the near-term challenges. BUY(Research Team)

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CSPC Pharmaceutical Group (1093 HK) – Largely in line results

CSPC is a vertically integrated pharmaceutical company in China with a diversified portfolio focusing on cardiovascular diseases and oncology, strong sales team of ~10k sales people in China and a solid research & development (R&D) pipeline to support a future stream of new drug additions. Major product brands include NBP, Duomeisu, Jinyouli and Keaili. For bulk drugs, key products include Vitamin C, caffeine and antibiotics. Over the medium term, we expect organic earnings growth to be supported by the company’s focus on R&D and positive shifts in sales mix. Following deals done in 2018 involving mostly early stage drug candidates, management is open to licensing deals to enhance its portfolio and aims to license new late-stage drugs near to commercial stage. Balance sheet is in net cash position. Potential share price volatility may result from concerns over pricing pressure due to ongoing sector reforms. BUY(Research Team)

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JD.com (JD US / 9618 HK) – Signed, sealed, delivered

JD’s 3Q21 numbers came in above expectations. Revenue of RMB218.7b grew 25.5% YoY, or 1.4% ahead of consensus. Non-GAAP PATMI of RMB5.0b was ~54.7% higher than consensus, representing a margin of 2.3%. Management highlighted a number of macro challenges in 2H21, but we believe that JD is likely to be able to navigate these headwinds better than some of its peers. Specific to the 4Q21 outlook, management believes that JD Retail is likely to maintain sequential growth momentum, with user growth as a key driver. 3P merchants are expected to help complement the supply chain challenges in the 1P business. Management’s comments of growth in 3P coming in faster than that of 1P (similar to 3Q21) is positive, given that the former is a higher margin business. We also believe this is attainable, as more merchants and brands return to JD’s platform following the ban of 2-choose-1 practices. In our view, losses from Jingxi Pinpin should only increase gradually as the group exercises prudence in expansion. Following adjustments, our FV rises from USD90 to USD111- (JD US) / HKD351 to HKD432 – (9618 HK). JD.com continues to be one of our preferred sector picks and has risen 16% (JD US) / 20% (9618 HK; at time of writing) since our sector report despite the challenging backdrop. We remain comfortable on the name given its resilient growth compared to peers and demonstrable ability to navigate near-term headwinds. BUY(Research Team)

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