Key discussion on how to leverage technology for growth。

Alibaba:Takeaway from Computing Conference 2017。    We were recently in Shanghai and Hangzhou to meet with industry
counterparts,ending the trip to attend the investor session at the
Computing Conference 2017held by Alibaba. Alongside hallway chats and
coffee break with Alibaba andAnt Financial, we sat in on group
presentations from AliCloud partners such asPhilips, Dockers and
Hangzhou Municipal Public Security Bureau Traffic Policefollowed by Ant
Financial’s sessions involving the use of technology such as AIand
biometric scanning to strengthen its position as a technology-driven
financialplatform. For both AliCloud and Ant Financial, we walked away
thinking that thereis both immediate and mid-term TAM expansion

    Technology improvements are broadening and deepening both now

    For example, Philips delved into existing relationship with AliCloud
and howits current partnership was in an transitional stage called
‘Bluebird’, whichmidway between its on-premise to cloud infrastructure.
We inferred from thediscussion that there was still room to grow in
virtualization and the IaaS and thatthe relationship further evolve
towards PaaS stack over time. Another examplewas from Zoloz that powers
Alipay’s eyeball biometric technology and howthe technology is already
in use for one-third of log in with biometrics, notonly delivering on
improved service efficacy but also enriching Ant’s data pool.Increasing
adoption of Ant’s Zhima Credit by traditional financial institution
seemswell underway and we received the impression it was partially
contributing tosharp earnings growth at Ant Financial. RA repeated
commentary from AliCloudpartners was AliCloud’s reliability in both
security and performance, but also theprofessionalism shown by its
staff. To date, AliCloud has attracted one-third ofChina’s Top
500enterprises with total customers reaching 1m, and the companyaims to
further deepen and broaden industry coverage across
manufacturing,finance, government bureaus, transportation, sports, and
so forth.。

    Valuation and key risks。

    Our Buy rating and target price of US$199remains unchanged. Our TP
is basedon an unchanged SOTP: 1) 33x CY18E P/E for e-commerce; 2) 8x
CY18E EV/Salesfor Alibaba Cloud; 3) 29x CY18E EV/EBITDA for Ant’s
payment and WM business,and 5.5x CY18E P/BV for the loan and insurance
business; 4) Cainiao valuation onprior capital raise; and 5) Net cash
excluding Alibaba Cloud. Risks: slower revenuegrowth in its core
commerce business and inability to expand or grow AlibabaCloud.。