We maintain our O/P recommendation on BABA post its decent F1Q26 results; topline growth missed expectations, EBITDA margin fell 1 ppt, and FOCF turned negative; that said, gross leverage remained modest, with a strong net cash position intact. We view BABA as a core holding in China/Asia IG credits, and it is our preferred duration play. Its longer duration bonds trade ~40 bp wider than Chinese SOEs of similar tenors. In particular, we like BABA 2035. Within China tech credits, we prefer BABA over BIDU/JD, which are rated 1-2 notches lower but trade only marginally wider. We also view BABA to be more defensive compared to high beta BBB China tech credits while offering value.

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 Alibaba against international peers.