01172017 China Renaissance Re BABA Monetization Upside Supported by U 1

January 17, 2017 Company Update

Alibaba Group Holding (BABA US, BUY, BUY, TP: $115.00) BUY

HOLD

Target Price: $115.00

SELL

Monetization Upside Supported by Upgraded Full Service; Reiterate Buy

Current Price: $96.27

52-Week High (MM) 52-Week Low (MM) EV (MM) Market Cap (MM) Shares Outstanding (MM) Average Daily Trading ng Volume (M)

$109.87 $59.25 $250,558 $233,953 2,430 10.5

Source: Factset

Price Performance 120 102

We are reiterating our Buy rating for BABA and $115 price target. We think BABA is best positioned in the market to provide full services including advertising, financing, logistics and inventory management, cloud, and other business services to merchants on its platform. The company continues to mine its trove of consumer data to deliver new ad products and improve its merchants' ROI. We see potential for growth in merchant ad spending and in the percentage of merchants that advertise. We expect BABA can also grow GMV by providing omni-channel services to offline merchants. AliCloud is the dominant player in the cloud market, and continues to enjoy advantages from its present scale, first-mover status, and strict cyber-security regulatory environment. Our $115 PT includes $110 for e-comm (0.9x PEG of FY18E non-Cloud EPS of $4.45), and $5 for AliCloud (7.5x P/S upon FY18E rev of $1.8bn).

85 ▪

68 50 JanJan-16 16 AprApr-16 16 JulJul-16 16 BABA S&P 500 (rebased)

OctOct-16 16

JanJan-17 17

▪

▪

▪

BABA's improving analytics attract advertisers- Alibaba continues to help merchants improve their ROI with new ad products such as JuXingTai, which allows merchants to fully customize their online presence. We hear positive feedback from ad agencies and expect growth potential in ARPA and in the percentage of merchants that advertise. Tmall Global recently raised service charges which likely brings upside to commission rev as well. Increasing GMV via omni-channelomni-channel- Another growth driver is Alibaba’s opportunity to help merchants manage offline and online sales across a single omni-channel platform. Offline retailers pay as much as 20% of sales for their offline channels, compared to a mid-teens rate to list and advertise on Alibaba, per our estimate. Its intended privatization of Intime should help it develop such capabilities, as well as provide opportunities for other businesses within its ecosystem, such as digital media and entertainment. entertainment. AliCloud leading the industry- We anticipate AliCloud's scale and experience adapting to cybersecurity requirements will likely keep it ahead of smaller, stateowned, and foreign rivals. We estimate 70% rev CAGR in next 2 yrs, with additional future growth possible if China's large enterprises follow their global peers in shifting from private to public cloud. Risks- include competition, stricter e-comm and online ad regulation, potential tax impact upon Taobao GMV growth, and macro risks such as economic slowdown and RMB depreciation.

Summary financial data Highlights Research Team Ella Ji, CFA Head of TMT Research +1 212-554-2966 [email protected]

2017E

2018E

2019E

Revenue (MM) ($) 22,575 Operating Income (MM) ($) 6,307 EPS ($) 3. 38 P/E 28.5x Source: China Renaissance Securities (US) Inc. ("CRSUS"), Company reports.

29,079 8,822 4.43 21.7x

36,752 11,934 5.61 17. 2x

China Renaissance Securities (US) Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON APPENDIX A

China Renaissance Securities (US) Inc.

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January 17, 2017 Company Update Investment Thesis We reiterate our Buy rating on Alibaba.com and $115 price target. The company ’s ambition is to become a full-service provider of advertising, financing, logistics and inventory management, cloud, and other business services to merchants on its platform, and we think it is well positioned to provide such comprehensive services. We recommend Alibaba as a core holding for long-term investors, considering its current attractive valuation and the high potential of its ecosystem over the long run. We anticipate secular growth driven by 1) the company ’s continuous improvement of monetization via new and industry-leading advertising products and services, which have been well received especially by large brands with deep pockets; 2) development of the omni-channel which brings more offline business into its platform; 3) its Cloud business, which is well positioned to benefit from the next wave of corporate services, as Chinese companies’ demand rise s rapidly along with big data in the mobile era, and 4) realization of its other businesses ’ values including its Ant Financial and Media & Entertainment businesses. Alibaba is currently trading at 21.7x our FY18E adjusted EPS estimate of $4.43. Current valuation is attractive, given its industry-leading GMV and op income per active user. See our valuation analysis including a BABA-JD comparison in the Valuation section.

Recent Quarter GMV Driver: Apparel, FMCG Alibaba will report its F3Q17 (ends December) on January 24. We anticipate a solid quarter with rebounding growth for the woman’s apparel category , likely attributable to impulse purchases from recently introduced live streaming videos. FMCG (fastmoving consumer goods) products, such as baby, cosmetics/skincare, personal care, as well as fresh food/cooking oils likely sell well too, helped by BABA’s aggressive subsidies. We forecast 24% GMV and 46.9% revenue growth for BABA for the quarter, assuming a 3.37% blended take rate. Our non-GAAP EBITDA margin forecast is 49.4% and our nonGAAP EPS estimate for the December quarter is $1.14.


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January 17, 2017 Company Update Exhibit 1. Alibaba Adjusted Operating Income per User (excl. AliCloud)

Source: Company reports, CRSUS estimates

InTime Retail Privatization Offer Alibaba announced on January 10th that it will lead the privatization of department store Intime Retail (1833.HK, not covered) for $2.6 billion, and increase its current 28% stake to 74%. Alibaba and Intime founder Shen Guojun have offered HK$10 per share, a 42.25% premium over Intime’s HK$7.03 closing price on Dec 28 before suspension of trading. Intime operates 29 department stores and 17 shopping malls, primarily in Zhejiang province. The firm’s profit declined 21.3% and sales declined 2.3% in 1H16 according to its financial statements, with management citing intense e-commerce competition. According to Bloomberg consensus, Intime ’s 2017E revenue estimate is about 3% of Alibaba’s revenue forecast, and its net income is just 1.2%. The near -term financial impact is not significant, in our view. We think the privatization is another step towards Alibaba’s a mbition of “new retail” in the omni-channel fashion, i.e. to break the boundary of online and offline and connect all things between offline and online. InTime malls may also be remodeled to bring in other Alibaba businesses within its ecosystem, such as movie theaters.

New Consumer Protection E-commerce Regulation On December 19 2016, the Standing Committee of the National People's Congress (NPC) reviewed a draft law for e-commerce regulation that would require all vendors on ecommerce platforms to have business licenses, pay taxes, and protect consumer data. The law also requires platforms to facilitate complaints against vendors and protect consumer financial and personal data, at penalty of fines up to RMB 500,000. The NPC has not disclosed an expected timeline for this law to take effect. If fully implemented, this likely will have some material impact on Taobao, Alibaba’s C2C platform (merchants selling on the B2C Tmall platform should already be registered and


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January 17, 2017 Company Update paying tax). In interviews with East Money, Taobao merchants said they may have to raise prices by as much as 10% to compensate for the higher tax burden. Price hikes are likely to affect Taobao’s GMV growth since low prices are one of the biggest attractions for Taobao shoppers. However, we believe the impact on Alibaba’s revenue is likely much smaller, since it only collects advertising dollars from Taobao merchants that pay no sales commissions based on GMV. Meanwhile, we also think the implementation might be challenging and take time, considering that there are more than 10 million merchants on Alibaba’s platform. For example, one potential problem merchants raised is that they lack tax documentation from suppliers, which may unfairly compel them to pay VAT (value-added tax) on the full sale price of their goods, instead of on the valueadded part only.

Monetization Upward Trend Continues, Supported by Better Services Our channel checks indicate a continuous upward monetization trend. We anticipate a higher blended take rate driven by Alibaba’s improving ad services to its platform merchants. As shopping shifts to mobile, its mobile take rate increased to 2.8% in the most recent quarter, up 64 bps from 2.15% one year ago, and exceeded the PC take rate for the first time. We forecast it will break 3% in FY17 and drive the blended take rate to exceed 3% as well in FY18. In addition, on January 3, Tmall Global released a list of service charge increases to go into effect on January 10, 2017. The increase affects certain subcategories within jewelry, toys, education, home care, personal care, and electronics, whose charges will increase from 2% or less to 5%. After the changes, service charges now stand at 4 -5% for most of the above categories and 1-2% for food and pet food. The change will likely have a positive effect on BABA’s take rate and revenues. Exhibit 2. Core China Commerce Revenue & GMV Projections

Source for both graphs: Company reports, CRSUS estimates


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January 17, 2017 Company Update Exhibit 3. BABA Monetization Rate Projection 3.8%

3.62%

3.6%

3.55% 3.34%

3.4%

3.28%

3.2% 3.00%

3.0% 2.8% 2.6% 2.4%

3.09%

2.97% 2.99% 2.51%

2.89%

2.73% 2.59%

2.2% 2.0% 6 1 Y F

Take Rate (blended)

E 7 1 Y F

E 8 1 Y F

Mobile take rate

E 9 1 Y F

PC take rate

Source: Company Reports, CRSUS estimates

For example, during the recent 11.11 Single’s Day Shopping Festival (Alibaba’s Black Friday equivalent), Tmall added more big data services for merchants and also continued to improve personalized recommendations for customers. Brands are commenting on improving click through rates (CTR) and conversion rates as a result, and appear to be satisfied with the improved offerings. Currently, only 1 million out of BABA’s 6 million active merchants are using its ad services. We thus anticipate a higher blended take rate driven by Alibaba ’s platform’s improving ROI (higher conversions and CTRs) as well as a growing paying merchant base. Looking forward, we anticipate the following drivers for its ecommerce revenue: Innovation in advertising. Larger merchants will allocate a greater share of budget to Alibaba, as expanded product offerings and improved performance metrics give them better sales returns on their advertising investment. In the future, we a nticipate tools permitting more transparent real-time tracking of ad performance, such as Google (GOOG, not covered) and Facebook (FB, not covered) currently offer, may encourage retailers to further increase ad spending. In addition, live streaming is gaining traction in specific verticals, such as beauty. We believe live streaming has the most potential in sectors like beauty, personal care, accessories, and apparel, whose customers like to see a product demonstrated and feel that its purchase brings them closer to attaining their favorite broadcaster’s “look.” We anticipate live streaming will help the performance of these categories in the December quarter of 2016.


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January 17, 2017 Company Update Exhibit 4. Livestreaming Adoption among Tmall Beauty Brands

Source: L2 Insight Report “China: The Rise of Livestreaming” and Alizila

Omni-channel increasing online penetration. Offline merchants are shifting a greater share of their sales inventory online, and will be able to direct their former offline marketing, rent, and personnel expense budgets into Alibaba advertising. Long-term ad load increase. Alibaba increased its ad load twice in May and September of 2015. Currently, we see for most categories it has 4 ads in the top 25 listings, or 16% ad load. This compares to JD ’s 1 ad in top 11 listings. Both are still below the 30% ad load criteria for online search companies, indicating room for growth.

Innovation in Advertising

Product Expansion and Refinement Supported by its big data and long-term user behavior data collection, Alibaba continues to improve its product offerings for its merchants, especially large-sized merchants, for whom its customer data collected across its ecosystem provide valuable targeting opportunities. Alibaba Major Ad Formats Taobao Express Train (Zhi Tong Che) P4P search keyword ads, ranked based on size of ad payment and merchant popularity/ratings Diamond Stall (Zuan Shi Zhan Wei) P4P targeted display ads on Taobao, TMall, Sina Weibo, NetEase, and Youku desktop sites and mobile


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January 17, 2017 Company Update Ma Ji Bao CPA Customer engagement/interactive marketing services incl uding communications, quizzes, and exclusive promotions Taobao Guest (Taobao Ke) Content creators on outside websites such as blogs are paid a commission for directing shoppers to an advertiser’s Taobao store Effective Branding (Pin Pai Shi Xiao) Brand advertising for sectors like auto to generate leads and build brand awareness Online Sales (Wang Xiao Bao) Targeted ad products on Alibaba’s wholesale site 1688, including search ads, premium online storefronts, and PPC display ads Source: Alimama

Core products include search and display ads, branded as Express Train and Diamond Stall, respectively. Newer products include the Ma Ji Bao service, which engages customers by offering them special deals for guessing the brand or price of a certain product. Alibaba is also fostering a social ecosystem on Taobao. Last year it introduced engagement incentives both for internet celebrities, who can earn commissions from brands, and everyday users who share photos and reviews. Quanzi circles allow users to share and discuss products by interest, and questions from potential buyers are forwarded to recent purchasers. Content creators on external sites may also earn commissions for hosting ads for Taobao platform merchants. Ad Targeting & Data Analysis Tools Daoist Sword (Da Mo Jian) Unified ID tracks products and users across sites, apps, and real location, claiming to cover 98% of internet users or 500 million people Used in ad targeting and identifying c ounterfeiters Daoist Shield (Da MoPan) Integrates Ali ecosystem data with merchant’s own customer data to track consumer behavior, location, and interests and target accordingly on Alibaba’s and 3P platforms Wireless Intelligence (Zhi Wu Xian) Open platform for design and cus tomization of mobile advertising content, rd including links to advertisers’ own 3 party apps Multi-Star Platform (Ju Xing Tai) Newly introduced big-data based product for large brands. Customizes product recommendations, promotions/pricing, online storefront, and product descriptions based on user data Source: Alimama

Alibaba assigns each user a Unified ID to track their activity across all products within the Alibaba ecosystem, including Youku, Taobao, and UCWeb browser, which it allows


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January 17, 2017 Company Update merchants to combine with their own customer tracking data. We have heard favorable feedback on the new product Ju Xing Tai, which allows advertisers to customize the product recommendations, online storefronts, and product descriptions users see as well as promotions they are offered. Continuing innovation in data-based targeting will increase consumer engagement and conversion and improve merchant ROI. A glimpse at US ecommerce giant Amazon's expansion of advertising beyond its own platform illustrates potential opportunities for Alibaba. In December 2016 Amazon rolled out 2 products to help outside content producers find advertisers: Amazon Header Bidding, which lets publishers receive real time bids for ad space which are hosted on AWS, and Amazon Shopping Insights, which tells websites what their readers buy on Amazon to better sell space to advertisers. While Alibaba has not stated an intention to launch such products, we believe Alibaba's user data and top cloud platform would make it a strong partner for other media if it does choose to offer them.

Alibaba May Dominate the Online FMCG Market, which Is Projected to Reach RMB 226Bn by 2025 FMCG encompasses fresh and packaged food, home care, personal care, and OTC drugs. Chinese consumers tend to turn to online FMCG platforms for premium and imported cosmetics, personal care, and baby products, due to safety concerns and limited offline selection. We believe that China's online FMCG market can grow to RMB 226 billion ($32 billion) by 2025 from RMB $55 billion at present. This would represent 15% CAGR over the next nine years. We expect the overall FMCG category growth to remain relatively flat, while online penetration increases from 4% in 2015 to about 16%. For more detailed analysis of the FMCG sector, please see our JD initiation report dated January 13, 2017. Exhibit 5. FMCG Online Penetration Expected to Reach 16% by 2025

Source: Bain, CRSUS Research


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January 17, 2017 Company Update FMCG orders tend to be low value, e.g. RMB100-200, coupled with moderate gross margin e.g. ~15%, making it difficult to break even at the operating income level. We therefore expect big platforms to increase their share without a significant challenge from small players. BABA’s share of the online FMCG market was 52% in 2015, according to OC&C Consulting, up from about 40% in 2014 according to Bain. Exhibit 6. B2C FMCG E-Commerce Market Share by Category

Source: Kantar 2016 China Digital Power Study

If we assume total online FMCG market size expands to RMB 100 billion in 2016 from RMB 60 billion in 2015, that would indicate ~RMB 55 billion online FMCG GMV for Alibaba. Despite the low margins, we think FMCG should expand and strengthen the Alibaba ecosystem. Alibaba’s strong female user base gives it an advantage in selling products such as cosmetics. The high frequency of FMCG purchases should increase user engagement, allowing it to cross-sell more expensive items. In addition, the personal nature of FMCG purchases makes it a valuable source of consumer data, improving the platform's advertising offerings.

Omni Channel Adds GMV from Offline Retailers Currently e-commerce penetration is in about the mid-teens in China and this share is continuing to grow. With a pricey real estate market raising rents, traditional brick and mortar retailers are pressured to move an even greater share of their sales online. Rent for retail stores has increased 20% annually in the past 5 years, consisting of a 28.5%


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January 17, 2017 Company Update increase in first tier cities and a 16.5% increase in second tier cities according to CBRE. According to business magazine Caijing, a Ministry of Commerce official stated in spring 2016 that rent made up 30% of operating costs for some retailers. Chinese firms also face rising fulfillment costs as well as intensifying competition from e-commerce and foreign retailers. Exhibit 7. Chinese Retailers Face Greater Competitive and Cost Pressures

Source: PwC, JDA Software Note: Global category includes China as well as US, UK, Germany, and Mexico

Alibaba is working to make the most of margin pressure on physical stores by encouraging them to combine online and offline into a single omni channel. Brands can manage inventory across all online and offline locations. In this way, even offline retailers can have a presence on Alibaba’s platforms, increasing its GMV and blended take rate. Brands pay consistently more for their offline channels than on Alibaba ’s platform. For example, skincare brand L’Occitane (0973.HK, not covered) and apparel brand Esprit (0330.HK, not covered) each paid 21% o f revenues toward rent and marketing in the last fiscal year, according to their filings. By contrast, brands currently pay a mid-teens percentage of revenues to list and advertise on Alibaba’s platforms , per our estimate. In addition, online is not merely a sales channel. It is also a key channel for branding and an important customer services platform. Alibaba therefore has considerable room to increase advertising revenue from brands looking to increase their investment in the omni-channel.


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January 17, 2017 Company Update Exhibit 8. Chinese Retailers Are Eager to Invest in the Omni-Channel

Source: PwC, JDA Software Note: Global category includes China as well as US, UK, Germany, and Mexico

Alibaba’s synthesis of online and offline extends to its O2O platform Koubei, a joint venture between Alibaba and Ant Financial which together invested $1 billion to launch the platform in June 2015. Koubei has worked to onboard merchants with promotions such as 2016’s Double 12 event, which offered consumers discounts at offline service providers. It gained participation from 1 million merchants, boosted traffic flow by 13%, and increased spending per customer by 29%, according to NetEase media. Koubei is close to closing a $1.2 billion financing round, which values the O2O platform at $8 billion, according to a December 21 article in Bloomberg. Investors include China Investment Corp, Silver Lake Management, Yunfeng Capital (backed by Jack Ma), Primavera Group, and CDH Investments. We anticipate Koubei’s net loss will continue to narrow in 2017, and the platform will add increasing value to the Alibaba ecosystem.

AliCloud at the Front of China’s Rising Cloud Market Bain predicted that China’s cloud market could reach $20 billion by 2020, still a fraction of IDC’s $195 billion estimate for the global cloud market in 2020. China’s cloud market is worth RMB 34.6 billion ($4.97 billion) in 2016, consisting of an RMB 14.76 billion public cloud market (43%) and RMB 19.82 billion private cloud market (57%), according to the China Academy of Information and Communications Technology (CAICT). The public cloud market can be further broken down into three types of services, from foundational to highly focused. Infrastructure-as-a-Service (IaaS) provides the servers, storage, and operating systems that allow businesses to forgo on-site servers and other hardware. Platform-as-a-Service (PaaS) is a web environment in which developers can build applications for functions including customer relationship management (CRM),


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January 17, 2017 Company Update database hosting, and data analysis. Software-as-a-Service (SaaS) offers software programs that are run over the web instead of as a local download, such as Office 365. In 2016, the RMB 14.76 billion China public cloud market consisted of RMB 6.5 billion IaaS, RMB 7.41 billion SaaS, and RMB 85 0 million PaaS according to CAICT. Exhibit 9. Public Cloud Market Composition, 2016

Source: China Academy of Information and Communications Technology

Robust Revenue Growth Expected We estimate AliCloud represents over a 40% share in China’s public cloud market. In the most recent quarter F2Q16 (Sept 30), AliCloud contributed RMB 1.5 billion or 4% of revenue with 130% y/y growth and 651,000 paying customers. Its adjusted EBITA loss narrowed to RMB 57 million in F2Q16 from RMB 158 million the previous quarter. We expect AliCloud will contribute more than RMB 7 billion and 14 billion total revenue in FY17 and FY18, respectively. Main drivers include consolidation in the public cloud space, large enterprises’ security concerns , an expected eventual shift from private to public cloud, and tight cybersecurity regulation that fa vors large domestic cloud providers. Exhibit 10. AliCloud Revenue Projection



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January 17, 2017 Company Update Early Mover AliCloud Retains Strong Competitive Positioning Alibaba launched cloud services in 2011 ahead of peers and is now seeking to leverage its current market share leadership into a similar level of profitability and dominance that Amazon’s (AMZN, not covered) AWS has been enjoying in the U S. AliCloud currently leads the cloud industry with over 40% market share in China’s public Infrastructure as a Service (IaaS) market, with Tencent (0700.HK, Buy, PT HKD 250), Ucloud (private company), AWS, Microsoft Azure (subsidiary of Microsoft, MSFT, not covered), China Telecom (CHA, not covered), etc. as its primary competitors according to IDC and our estimates. We are optimistic about AliCloud’s market share leadership in China in the long term. Although current market competition is intense, we believe AliCloud should be able to succeed over time. Foreign companies have strong reputations for quality, and AWS for example is highly competitive in pricing. However, AWS had only a 4.3% share while IBM (IBM, not covered) had less than a 1% share of China’s public cloud market in 2015 according to IDC. Laws requiring data of Chinese companies to be retained in China forces foreign firms to sell through local partners. Foreign firms will be particularly constrained by a cybersecurity law scheduled to take effect this June, which requires network operators to censor, cooperate with official inquiries, and submit to rigorous oversight if serving key industries including energy, finance, and internet. Last August, 46 foreign trade groups signed a petition opposing the law on grounds it would erect trade barriers. Separately, the central government has also instructed local governments to reduce their reliance on foreign IT, indicating their desire to grow domestic champions in the cloud. Other major domestic companies include Tencent, which entered the cloud market in 2012 and specializes in the social, video and gaming verticals, as well as state-owned telecom providers and smaller cloud firms. For example, China Telecom (CHA, not covered) and China Unicom (CHU, not covered) had 13.1% and 7.6% of China's public cloud market in 2015 respectively, according to IDC. The telecom companies' structure as state-owned enterprises (SOEs) and need to partner with IT firms such as Huawei for equipment disadvantage them compared to private rivals. While select, smaller players have been able to raise funding (e.g. UCloud raising RMB 1 billion and Qi Niu Cloud (private company) raising RMB 1.4 billion since 2014), we believe price competition will likely consolidate the industry in the long run. Long-Term Opportunities in the Private Cloud Market Private Cloud is more than 57% of the total cloud market and mainly suits large companies. Such large-sized Chinese enterprises prefer to operate private cloud systems out of an in-house data center, citing security concerns and a desire to retain control of their data. Large firms, especially SOEs, are less price-sensitive and more likely to be held accountable by the government if they do suffer a security breach.


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January 17, 2017 Company Update Exhibit 11. Larger Enterprises Prefer Private Cloud

Source: Bain China Private Cloud Report 2015

While the public cloud requires massive scale to compete on capacity and cost, and is therefore dominated by a few giants, private cloud customers value compatibility with their existing systems, user friendliness, and security. It is therefore easier for smaller companies to compete in private rather than in public clouds, especially hardware companies or those whose operating systems are compatible with companies’ legacy IT systems. IBM is, therefore, the market leader in the global private cloud, although AWS dominates the public cloud market, according to Synergy Research Group (Exhibit 13, below). Exhibit 12. Global Private Cloud Is Less Consolidated than Public Cloud

Source: Synergy Research Group

While cybersecurity regulations favoring domestic companies may hinder IBM’s expansion in China, AliCloud will still face private cloud competition from increasingly competitive domestic IT hardware companies such as Lenovo (0922.HK, ADR: LNVGY), not covered), Huawei (002502.SZ, not covered), and Inspur (0596.HK). A 2015 Bain


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January 17, 2017 Company Update survey found that Huawei’s private cloud services have been popular among telecom operators, which have been among the first large enterprises to shift away from foreign hardware. Private to Public Cloud Despite the current preference for private cloud, we think more large enterprises may gradually shift toward public cloud in the next several years. Alibaba released a hybrid public-private cloud platform this year in response to new security rules, and has already signed the Zhejiang government, Guizhou police, and national Customs Administration as customers. For government bodies and SOEs, the central government's directives to boost domestic cloud providers may counterbalance their security concerns. An interesting trend in the global market is large enterprises' increasing willingness to adopt public cloud services. A 2016 Global Cloud survey by McKinsey found that while only 10% of large enterprises surveyed used public Infrastructure-as-a-Service (IaaS) in 2015, 51% planned to use IaaS as a primary environment for at least one workload type by 2018. Security concerns are easing over time as companies become more comfortable with AWS and peers' security, acknowledging the cloud giants' security budgets dwarf their own. Even the US CIA now uses AWS, according to Forbes, recognizing that Amazon’s experie nce securing its public cloud has prepared it to provide security for a private cloud. Chinese large enterprises may similarly become more comfortable with public cloud security features as the cloud market develops. Exhibit 13. Global Public Cloud Spending to Exceed Private Cloud

Source: IDC


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Continued Investment in Media and Entertainment Alibaba keeps building its media and entertainment business coverage. In 2016 it acquired Youku in April, consolidated its media and entertainment business in the Sept quarter, and announced a $1.48 billion investment fund for new media projects. It also participated in the recent RMB 2.5 billion fund raising of China’s Bona Film. Alibaba eventually should cover the entire movie industry from upstream movie production to downstream movie publication and distribution. Exhibit 14. Digital Media & Entertainment Revenue Projection


Youku is currently one of the top online video platforms in China. We estimate it will contribute to the majority of our expected RMB 14.5 billion Digital Media & Entertainment segment revenue for FY17E, as shown in Exhibit 15 above. EBITA loss will likely remain steep, as we anticipate Alibaba will support Youku to become more aggressive in bidding for high-quality content.


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January 17, 2017 Company Update Exhibit 15. Youku Tudou ’s and Competitors ’ MAUs

Source: Questmobile

Exhibit 16. Youku Tudou ’s and Competitors ’ Time Spent

Source: Questmobile

A June 2016 survey by Penguin Intelligence suggests that video services must continue to sustain a high-content investment, since subscribers pay to view megahits and have little loyalty to any given platform. Fully 49% of subscribers signed up for a platform’s exclusive content, compared to only 27% for the content library and 16% for a better viewing experience. When they did subscribe, 55.8% of respondents said they preferred to purchase one-month memberships.


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January 17, 2017 Company Update Exhibit 17. Subscription Package Purchases of Video Subscribers

Source: Penguin Intelligence

This survey finds that the biggest reason for buying 1-3 month subscriptions is an unwillingness to spend money. Viewers are only willing to pay for the current run of an exclusive show, which will keep competition and spending high. Although competition among BAT will remain intense, competition from n ew entrants in the video space is unlikely. For example, a 30% cap on foreign content has constrained Western giants like Netflix. Regulators required live streamers to register in November and prohibited sharing of unofficial videos on social media in December 2016. This tightening of internet video regulation in the past 2 months almost ensures that Youku Tencent’s Video and iQ iyi’s video should primarily compete with each other in this space, in our view.

Valuation

BABA-JD, Sameness and Difference As a major Chinese internet company Alibaba is often referred to collectively with Baidu (BIDU, Buy, $204) and Tencent as BAT, reflecting the three firms' dominance of the industry with a combined 70% share of user time spent on mobile devices in China in 2016, according to our research. Alibaba's diverse business segments also compete with other companies in the e-commerce, O2O, media & entertainment, payments, logistics, and cloud services industries. However, unlike Baidu and Tencent, Alibaba's core business involves the sale of physical products; China e-commerce (retail and wholesale) will contribute 77.4% of revenues in FY17 per our estimates. Therefore, we have chosen to analyze Alibaba here with JD.com, China's second largest e-commerce platform by GMV according to iResearch.


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January 17, 2017 Company Update The table below highlights our findings of the differences between the two e-commerce companies, providing a better appreciation for each company’s scale and business model. For JD, the full sale price of goods sold under its direct sales model is booked as revenue, giving it higher revenue than BABA. Alibaba's marketplace business model generates income via advertising and sales commissions, yielding lower revenue but higher adjusted op income per active user, at 13x that of JD’s. Excluding its cloud business, Alibaba’s current market cap is 6x the size of JD. We forecast BABA’s revenue CAGR at 29% while JD’s revenue CAGR should be at 31% from 2016 -2018, yet JD’s margin expansion, in our opinion, should be more robust than BABA ’s and its user growth has exceeded that of BABA, accord ing to both companies’ reports. We think Alibaba’s scale and business model make it an attractive pick. Our $115 target includes $110 for e-commerce business (0.9x PEG of FY18E non-Cloud EPS of $4.45), and $5 for AliCloud (7.5x P/S multiple upon FY18E rev of $1.8bn). Exhibit 18. BABA (excl. AliCloud) and JD Valuation and Operation Comparison 2017E* Market

BABA JD BABA:JD

Target

Adj Op

Market Cap

Cap/ User

Market Cap GMV (RMB

Revenue

Active

Income/

(USD bn)

(USD)

(USD bn)

bn)

(RMB bn)

236.31**

437.31

290.97**

4,497.02

200.64

540

164.68

39.01

131.39

46.69

881.76

343.08

297

12.59

6.1x

3.3x

6.2x

5.1x

0.6x

1.8x

13.1x

Users (mn) User (RMB)

*JD FY2017 = calendar year 2017, BABA FY2018 ends March 2018 **excl Cloud. Source: Company reports, CRSUS estimates

Price Target Calculation We are reiterating our Buy rating and maintaining our $115 US target price, which includes $110 for e-commerce and $5 for AliCloud at an exchange rate of 6.9 RMB to USD based on our FY 2018 estimate. The $110 US ecommerce target price is based on 0.9x PEG, 27.4% EBITA CAGR for the next 2 years, and FY18E non-GAAP EPS of $4.46 (excl. Cloud). Separately, for its Cloud business, we estimate Alibaba will achieve roughly RMB 12 billion in revenue in FY18 (ending March 2018). We apply a 7.5x target multiple up AliCloud’s FY18E revenue, which comes to ~$13 billion total valuation, or ~$5 per share. There is also potential value upside from other businesses in Alibaba’s ecosystem, such as Ant Financial Services, Digital Media and Entertainment business, and logistics services, which are not included in our price target. For example, Ant Financial is valued at ~$60 billion based on the latest round of financing. We estimate it will realize nearly $2 billion net income in FY18E. Alibaba has the right to convert its interest in Ant Financial into 33% equity, subject to Chinese regulatory approval. The 33% of $60 billion should be worth $19.8 billion, or ~$7.6 per share.


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January 17, 2017 Company Update Exhibit 19. Price Target Calculation

In USD eCommerce AliCloud Total RMB/USD

Revenue (in Bns) $1.77

EPS 4.45 -$0.02 4.43

Multiple 24.80 7.50

P/E multiple P.S multiple

Target Price $110 $5 $115

6.9

Source: Company reports and CRSUS estimates

Key Risks to Our Price Target Risks that Alibaba may face that would impede achieving its price target are: E-Commerce Competition – Alibaba faces competition from established e-commerce rivals as well as emerging platforms offering specialty products such as baby products, imports, and cosmetics. As a social platform, Taobao also competes with other forms of social media and entertainment for user time and ad revenue. Challengers may slow its GMV and/or revenue growth, impeding achievement of it s price target. Third-party merchants increase product quality risk – Potential brushing and counterfeiting of third party merchants on Alibaba ’s platforms increase its risks of consumer dissatisfaction, damaged partnerships with the counterfeited brands and regulatory penalties causing revenues to suffer. Business services competition – As Alibaba enters the business services space, it will face competition from rivals in this area including other tech companies, SOEs such as telecom firms, as well as foreign rivals. In addition, like other cloud providers, Alibaba is at risk of a security breach and the regulatory penalty in this area as well as the reputational damage and loss of business that it could entail, which would affect revenues, reputation, and ultimately, the price target. Regulatory – The draft e-commerce regulation proposed in December 2016 may increase tax, security, and compliance costs to Alibaba and its vendors. The final form and timeline of the regulation remains uncertain at present , but it may impact Alibaba’s bottom line within our time horizon and thus affect earnings per share and the target price.


20

January 17, 2017 Company Update Alibaba Income Statement (in RMB millions, except per share or stated otherwis

FY 12

Total Revenues (=1+2+3+4+5)

20,025

FY 13

FY 14

34,517

Y/Y Change (%)

FY 15

52,504

72.4%

FY 16

76,204

52.1%

FY 17 E

101,143

45.1%

FY 18 E

152,347

32.7%

200,642

50.6%

31.7%

FY 19 E 253,590 26.4%

Q/Q Change (%)

Cost of Revenue

6,554

As % of Total Sales

32.7%

y/y change

Gross Profits

13,471

13,369

23,834

34,355

57,736

75,843

95,857

28.2%

25.5%

31.3%

34.0%

37.9%

37.8%

37.8%

48.3%

37.6%

78.3%

44.1%

68.1%

31.4%

26.4%

94,611

124,799

157,733

71.8%

74.5%

68.7%

66.0%

62.1%

62.2%

62.2%

GP y/y change

84.1%

57.8%

33.8%

27.5%

41.7%

31.9%

26.4%

Non-GAAP Gross Margin

72.9%

76.7%

74.2%

70.0%

65.1%

64.7%

64.4%

Gross Margin

9,719

67.3%

Operating Income Operating Margin

Non-GAAP Operating Margin

39,135

52,370

23,135

66,788

5,150

14,413

24,964

25.7%

41.8%

47.5%

30.4%

28.8%

27.9%

30.3%

32.5%

179.9%

73.2%

-7.3%

25.8%

46.3%

43.0%

35.3%

Operating Profit y/y change

Non-GAAP Operating Income

24,798

29,102

45,184

60,869

60,769

80,896

82,347

6,404

15,672

27,808

32.0%

45.4%

53.0%

47.5%

44.7%

44.1%

44.3%

45.0%

144.7%

77.4%

30.0%

24.9%

34.5%

33.1%

29.0%

Operating Profit y/y change

36,163

42,563

104,377

GAAP Net Income

4,665

8,649

23,403

24,320

71,289

33,767

52,229

71,569

Non-GAAP Net Income

1,787

13,752

27,522

34,922

42,861

58,497

78,924

100,431

8.9%

39.8%

52.4%

45.8%

42.4%

38.4%

669.6%

100.1%

26.9%

Non-GAAP Net Margin Y/Y Change (%)

GAAP Diluted EPS Non-GAAP Diluted EPS

-

-

0.58

22.7%

36.5%

39.3%

39.6%

34.9%

27.3%

-

-

13.33

20.37

27.71

0.71

5.76

11.80

13.98

16.73

22.46

30.15

38.21

Non -GAAP D ilu ted EPS at tr ibut able t o or dinar y s

0.54

5.71

11.76

13.95

16.80

22.82

30.57

38.69

Weighted Basic Shares Outstanding

2,479

2,294

2,175

2,337

2,458

2,477

2,489

2,499

Weighted Diluted shares outstanding

2,522

2,389

2,332

2,499

2,562

2,605

2,618

2,628

7,274

16,607

30,731

40,753

52,340

71,236

92,587

116,680

Non-GAAP EBITDA-BABA Adjusted EBITDA margin

36.3%

48.1%

58.5%

Y/Y change (%)

BABA Income Statement in USD ($Ms)

FY 12

Total Revenues

FY 13

3,214

Y/Y Change (%)

Non-GAAP Operating Income Operating Margin

Non-GAAP Net Margin

Non-GAAP EBITDA margin

46.1%

46.0%

36.1%

30.0%

26.0%

FY 15

FY 16

12,293

FY 17 E

15,686

45.2%

FY 18 E

22,575

27.6%

29,079

43.9%

FY 19 E 36,752

28.8%

26.4%

2,589

4,483

5,834

7,007

6,307

8,822

11,934

53.0%

47.5%

44.7%

27.9%

30.3%

32.5%

151.9%

73.1%

30.1%

20.1%

-10.0%

39.9%

35.3%

287

2,272

4,436

5,633

6,647

8,668

11,438

14,555

8.9%

39.8%

52.4%

45.8%

42.4%

38.4%

39.3%

39.6%

692.0%

95.3%

27.0%

18.0%

30.4%

32.0%

27.3%

1,168

2,743

4,954

6,574

8,117

10,556

13,418

36.3%

48.1%

58.5%

53.5%

51.7%

46.8%

46.1%

46.0%

135.0%

80.6%

32.7%

23.5%

30.0%

27.1%

26.0%

4.43

5.61

0.09

Y/Y Change (%) USD/RMB

46.8%

45.4%

Y/Y change (%)

Non-GAAP Diluted EPS

8,463 48.4%

51.7% 28.4%

1,028

Y/Y Change (%)

Non-GAAP EBITDA

5,702 77.4%

53.5% 32.6%

32.0%

Y/Y Change (%)

Non-GAAP Net Income

FY 14

0.94 997.3%

6.23

6.05

1.90 101.1% 6.20

2.25

2.60

3.38

16,910

18.7%

15.7%

29.8%

31.0%

26.6%

6.20

6.45

6.75

6.90

6.90



21


Appendix A Analyst Certification I, Ella Ji, CFA, certify that the views expressed in this research report accurately reflect my personal views about any and all of the subject securities or issuers featured in this report. Furthermore, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report.

Important Disclosures The following disclosures relate to relationships between China Renaissance Securities (US) Inc., China Renaissance Securities (Hong Kong) Limited, each of their affiliates, (collectively "China Renaissance") and companies covered by research analysts of China Renaissance and referred to in research products. All references in this report to “CRSUS” refer to China Renaissance Securities (US) Inc. CRSUS is registered with the Securities and Exchange Commission (the “SEC”) as a U.S. broker-dealer under Section 15 of the Securities Exchange Act of 1934 and is a member of FINRA and SIPC (http://www.sipc.org). CRSUS is located at 45 Rockefeller Center, Suite 1900, New York, NY 10111. All references in this report to "CRSHK" refer to China Renaissance Securities (Hong Kong) Limited. CRSHK is licensed by the Securities and Futures Commission for the conduct of dealing in securities, advising on securities, and advising on Corporate Finance. CRSHK is located at Units 8107-08, Level 81 International Commerce Centre, 1 Austin Road West, Kowloon, Hong Kong. Disclosures required by United States laws and regulations See company-specific regulatory disclosures below for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co-managed public offerings in prior periods; directorships; for equity securities, market making and/or specialist role. China Renaissance trades or may trade as a principal in debt securities (or in related derivatives) of issuers discussed in this report. In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, China Renaissance, its affiliates, and their respective officers, directors or employees, other than the analyst(s) who prepared this report, may have a long position of less than 1% or a short position or make purchases or sales as principal or agent in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest. Unless prohibited by the provisions of Regulation S of the U.S. Securities Act of 1933, this publication is distributed in the U.S. in accordance with the provisions of Rule 15a-6, under the U.S. Securities Exchange Act of 1934 for Major Institutional Investors, as such term is defined in Rule 15a-6. To the extent that this publication is distributed to U.S. Institutional Investors other than Major Institutional Investors, this publication is distributed by CRSUS but not CRSHK (whether directly or indirectly). Any transactions by U.S. persons with China Renaissance Securities (Hong Kong) Limited in securities discussed in this publication will be effected through China Renaissance Securities (US) Inc., in compliance with the requirements of paragraph (a)(3) of Rule 15a-6 of the U.S. Securities Exchange Act of 1934. Additional disclosures required under the laws and regulations of jurisdictions other than the United States


22

January 17, 2017 Company Update Distribution in Hong Kong The report is for your information only and is not an invitation or offer to sell, or a solicitation of an offer to buy, the securities described in this report. It has been prepared solely for professional investors (as defined in the Securities and Futures Ordinance of Hong Kong) whose business involves the acquisition, disposal or holding of securities, whether as principal or agent, and is not intended for disclosure to, and should not be relied upon by, any person other than a professional investor. If you are an unintended recipient of this report, you are requested immediately to return this copy of the report directly to China Renaissance Securities (Hong Kong) Limited. For professional investors in Hong Kong, please contact China Renaissance Securities (Hong Kong) Limited for all matters and queries relating to this report. The following disclosures are made by CRSHK as per paragraph 16 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“SFC Code of Conduct”), and capitalized terms used below bear the same meanings as defined in paragraph 16 of the SFC Code of Conduct. A copy of the SFC Code of Conduct can be found on: www.sfc.hk: The Analyst(s) or his/her Associate serve as an officer of the Issuer that the Analyst(s) review in this report: Nil Issuers that the Analyst(s) review in this report where the Analyst(s) or his/her Associate have Financial Interest: Nil Financial Interests in relation to the Issuer of the Securities which are reviewed in this research report where CRSHK has an aggregate of such interests amount to 1% or more of the Issuer's market capitalization: Nil Securities of the Issuer that the Analyst(s) review in this report where CRSHK make a market: Nil Individuals who are employed by or associated with CRSHK who are serving as an officer of the Issuer: Nil Any investment banking relationship that CRSHK has with the Issuer (including any compensation or mandate for investment banking services received within the preceding 12 months of this report): See further China Renaissance disclosures below. Global product, jurisdiction and distribution The research group of China Renaissance produces and distributes research products for clients of China Renaissance on a global basis. Analysts based in China Renaissance offices around the world produce equity research on industries and companies. This research is disseminated in Hong Kong by CRSHK; and in the United States of America by CRSUS. CRSUS has approved and agreed to take responsibility for any research prepared by CRSHK if and to the extent CRSUS distributes it in the United States. This report and the securities and financial instruments discussed herein may not be eligible for distribution or sale in all jurisdictions and/or to all types of investors. This report is provided for information purposes only and does not represent an offer or solicitation in any jurisdiction where such offer would be prohibited.


23

January 17, 2017 Company Update No part of this report may be reproduced or distributed in any manner without the written permission of CRSUS. CRSUS specifically prohibits the re-distribution of this report, via the Internet or otherwise, and accepts no liability whatsoever for the actions of third parties in this respect. The following are additional required disclosures: Ownership and material conflicts of interest : China Renaissance’s policy prohibits its analysts, professionals reporting to analysts and members of their households from owning positions in securities of any company in the analyst's area of coverage. Analyst compensation: Analysts are paid in part based on overall revenues of China Renaissance, which includes investment banking revenues. Analyst as officer or director: China Renaissance’s policy prohibits its analysts, persons reporting to analysts or members of their households from serving as an officer, director, advisory board member or employee of any company in the analyst's area of coverage. Non-U.S. Analysts: Non-U.S. analysts are not registered or qualified as research analysts with FINRA. They may not be associated persons of CRSUS and therefore may not be subject to FINRA Rule 2241 or FINRA Rule 2242 restrictions on communications with Subject Company, public appearances and trading securities held by the analysts Potential Conflicts of Interest Analyst Conflict of Interest: The research analyst(s) responsible for the preparation of this report receives compensation based upon a variety of factors, including the quality and accuracy of research, internal/client feedback, and overall firm revenues, which include investment banking revenues. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. China Renaissance Conflicts of Interest: China Renaissance has not managed or co-managed a public offering of the securities for the companies referenced in this report in the past twelve months. China Renaissance received compensation for investment banking services from JD.com Inc. (JD) in the past 12 months. China Renaissance has not received compensation for investment banking services from Alibaba Group Holding (BABA) in the past 12 months. China Renaissance expects to receive or intends to seek compensation for investment banking services from Alibaba Group Holding (BABA) and JD.com Inc. (JD) in the next three months. Distribution of Ratings and Investment Banking Below is the distribution of research recommendations as of January 17, 2017 Rating Buy Hold Sell

Count 5 3 1

Percent 55.56% 33.33% 11.11%

IB Count 5 3 1

IB% 100.00% 100.00% 100.00%

China Renaissance Ratings as of May 10, 2016: Ratings of Buy, Hold and Sell have a time horizon of twelve to eighteen months from the date of publishing the initiation or subsequent rating/price target change report issued for the subject company. The ratings are as follows:


24

January 17, 2017 Company Update Buy – The expected return on the subject company’s stock price should outperform the typical benchmark market index for the subject company's primary listing exchange (e.g. the S&P 500 for US-listed stocks) over the above-defined time horizon from the publishing date of the initiation of coverage or subsequent report announcing a rating change. Hold – The stock price of the subject company is not expected to either appreciate or depreciate meaningfully from the typical benchmark market index for the subject company's primary listing exchange (e.g. the S&P 500 for US-listed stocks) during the above-stated time horizon. Sell – The expected return on the subject company’s stock price should underperform the typical benchmark market index for the subject company's primary listing exchange (e.g. the S&P 500 for US-listed stocks) over the above-defined time horizon from the publishing date of the initiation of coverage or subsequent report announcing a rating change. Not Rated – China Renaissance has removed the rating and, if applicable, the price target, for the subject company's stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, should no longer be relied upon. An NR designation is not a recommendation or a rating. Not Covered – a company for which China Renaissance research has not been published. Valuation Methodology BABA US: Our $115 price target for Alibaba (BABA, Buy) is based on $110 for e-commerce and $5 for cloud. The $110 ecommerce target price is based on 0.9x PEG, 27.4% EBITA CAGR for next 2 years, and FY18E non-GAAP EPS of $4.45 (excl Cloud). There is also potential value upside from its agreement with Ant Financial Services, which is not included in our price target. Alibaba has the right to convert to 33% equity interest in Ant Financial, subject to regulatory approval. The 33% of Ant's $60 billion valuation , based on the latest round of financing, is worth $19.8 billion, or ~$7.6 per share.

General Disclosures This research is for institutional investors only, and intended for our clients only. Other than disclosures relating to China Renaissance, this research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Other than certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgment. China Renaissance conducts a global integrated investment banking, investment management, and brokerage business. We have investment banking and other business relationships with a substantial percentage of the companies covered by our research group. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and principal trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research.


25

January 17, 2017 Company Update The analysts named in this report may have from time to time discussed with our clients, including China Renaissance salespersons and traders, or may discuss in this report, trading strategies that reference catalysts or events that may have a near-term impact on the market price of the equity securities discussed in this report, which impact may be directionally counter to the analysts' published price target expectations for such stocks. Any such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks, which rating reflects a stock's return potential relative to its coverage group as described herein. We and our affiliates, officers, directors, and employees, excluding research analysts named in this report, may from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research. The views attributed to third party presenters at China Renaissance arranged conferences, including individuals from other parts of China Renaissance, do not necessarily reflect those of the research group and are not an official view of China Renaissance. Any third party referenced herein, including any salespeople, traders and other professionals or members of their household, may have positions in the products mentioned that are inconsistent with the views expressed by analysts named in this report. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Investors should review current options disclosure documents which are available from China Renaissance sales representatives or at http://www.theocc.com/about/publications/ character-risks.jsp. Transaction costs may be significant in option strategies calling for multiple purchase and sales of options such as spreads. Supporting documentation will be supplied upon request. All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client websites. Not all research content is redistributed to our clients or available to thirdparty aggregators, nor is China Renaissance responsible for the redistribution of our research by third party aggregators. For research, models or other data available on a particular security, please contact your sales representative. Disclosure information is also available from Compliance, 45 Rockefeller Plaza, Suite 1900, New York, NY 10111. © 2017. China Renaissance. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of China Renaissance. This message and any attachments are confidential. If you are not the intended recipient, please notify the sender immediately and destroy this email. Any unauthorized use or dissemination is prohibited. All email sent to or from our system is subject to review and retention. This email is for information only. Nothing contained in this email shall be considered an offer or solicitation with respect to the purchase or sale of any security or related financial instrument in any jurisdiction where such an offer or solicitation would be illegal. China Renaissance does not represent that any of the information contained herein is accurate, complete or up to date, nor shall


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January 17, 2017 Company Update China Renaissance have any responsibility to update any opinions or other information contained herein. Unless otherwise stated, any views or opinions presented are solely those of the author and do not represent those of China Renaissance.


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01172017 China Renaissance Re BABA Monetization Upside Supported by U 1

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