We maintain our Outperform recommendation on Alibaba post its decent 1Q25 results; topline growth marginally slowed, EBITDA margin improved,FOCF fell on higher capex, net cash remained robust and debt metrics were stable. We expect Alibaba’s topline growth to accelerate over FY26, driven by better domestic eCommerce monetization, resilient international eCommerce, and robust cloud demand; we expect EBITDA margin to remain flat at 20%, but FOCF to trend lower on a material increase in capex for cloud; that said, we expect Alibaba’s Total debt/EBITDA to improve over the next 12 months, and maintain its healthy net cash position. We continue to view Alibaba as a core holding in Asia IG credits. We prefer its 30/35/41 bonds for spread pick up against Chinese SOEs.

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.