Alibaba Group:Buy,Alibaba Computing Conference Day 1takeaways

Alibaba Cloud: for value beyond computing. As the fastest growing cloudcomputing company globally, Alibaba Cloud has over 1m paying customers, 80% ofwhom are innovative companies with fast growth, and a third of China’s largest 500companies are also customers. Cooperating with Zhejiang municipal government, ithas moved the IT infrastructure of 71k enterprises in Zhejiang Province to cloud, andaims to increase this to 100k in the future. On 8 October, Weibo (WB US, USD99.72,Buy) successfully repurposed 1k servers from AliCloud to meet an unexpected surgein social media traffic that temporarily took down its service. Jack Ma, Chairman ofAlibaba Group, plans to offer infrastructure-related cloud services for free in the longrun, as AliCloud will charge for value-added services beyond infrastructure tocustomers empowered by big data. Alibaba is working closely with business partnersto improve efficiency of supply chains, daily operations, information security and costcontrol. Its business partners include the International Olympic Committee, themunicipal governments of Zhejiang and Hangzhou, China Tax Bureau, Moutai,Hengyi, Philips China, China Huaneng, Geely, Bank of Nanjing, Air Asia and BGI.

    Ant Financial. CTO of Ant Financial Mr. Li Cheng believes that Ant has successfullytransitioned the ages of escrow payment, express payment, mobile payment andcredit based payment, and has entered the age of “smile to pay”. A third of its usershave been using facial recognition as the primary way to open the App. Some offlinecases, such as KFC and Hema, have successfully launched facial scanning paymentempowered by Ant. Blockchain, AI, security, IOT, and cloud computing (BASIC) arethe essential elements for their infrastructure. This advanced infrastructure, alongwith connectivity ability, credit system and risk control system, are barriers to entry forAnt Financial. Ant plans to open its capabilities to partners to step up cooperationand strengthen its ecosystem.

    Launch of DAMO Academy. Alibaba announced the launch of DAMO Academy, aresearch institution aspiring to reach global standards. The institution is positioned asan academy for discovery, adventure, momentum and outlook, and will focus on realworldapplications such as data intelligence, the Internet of Things, fintech, quantumcomputing and human-machine interaction. Alibaba will provide RMB100bn for theinstitution over the next several years, open labs in seven cities globally and expectsit to be self-sustaining in the future. DAMO will be run independently from Alibaba.

    Maintain Buy and USD204 TP: Our thesis rests on three points: (1) Alibaba hasvaluable data assets on its consumers that it can leverage to increase its value toboth buyers and brands, resulting in high monetization and margins; (2) it is thethought leader in China retail and its New Retail concept sets the stage for long-termvalue creation; (3) valuation is attractive, at 25x FY19e EPS.