We maintain our Outperform recommendation on Alibaba (A1/A+/A+) post its F2Q25 results; the improving topline growth and take rate of its domestic eCommerce segment was a highlight though the widening losses at its international eCommerce and logistics arm, Cainiao, which are still at a ramp-up stage weighed on overall EBITDA margin and cash flow; shareholder rewards continued burning cash, but was expected and manageable. We expect Alibaba’s debt metrics to be stable over the next 6-12 month, on an acceleration of topline growth, stabilizing EBITDA margin, and healthy FOCF, which can cover its shareholder rewards. We continue viewing Alibaba as a core holding in China and Asia IG credits; and for investors looking to add duration in Asia credits, we recommend Alibaba’s 31 and its new 30.

While Chinese policymakers have adopted an increasingly friendly stance towards tech platforms, regulatory clampdown (e.g. anti-monopoly guidelines, data security laws, personal information protection laws) may still affect Alibaba as it increases compliance cost. There are regulatory risks given the corporate structure which uses variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers (ICPs).

Intensifying competition amongst eCommerce platforms may result in slower topline growth and weaker EBITDA margins.

Alibaba does not control Alipay but relies on Alipay to conduct substantially all the payment processing and escrow services on its marketplaces.

US-China tension may escalate under the new Trump Administration, including additional chip sanctions, which may result in higher volatility. Failing to secure a stable supply of advanced AI chips and/(or) find domestic alternatives could weigh on the long-term AI development of Tencent against international peers.