Still dominant amidst shifting competitive sands    Still dominant amidst shifting competitive sands Alibaba Cloud continues todominate the domestic IaaS market, though our CIO survey this year showed adecline in popularity from 65% in 2016to 54% in 2017under a single-vendorscenario, and from 79% to 59% under a multi-vendor strategy. Given its clearsuccess with SME’s, we believe that Alibaba Cloud will benefit further bycultivating expertise and experience to serve large enterprise, especially amidstincreasing competition from domestic vendors such as Huawei Cloud, whichhas entered the market with decades of experience in serving large enterprisecustomers. Maintain Buy in appreciation of monetization from core commerce.    Forecasting strong net adds; ARPU robust despite deep price cuts    We expect Alibaba Cloud’s paying customer base to continue to grow at thehealthy 3-year CAGR of 58.0% from FY2017to reach 2.8m by FY2020E. Weexpect to see further major price reductions in the near- to mid-term byAlibaba Cloud and its peers. Despite downward pressure from continued pricecuts, consistent demand growth for new services from existing customersdrive forecast ARPU to RMB11,696.9in FY20E (a 3-year CAGR of 8.0%).We cut CY19/20Alibaba Cloud revenue by 3% and 8%; keeping FY18forecast sunchangedWe cut CY19/20Alibaba Cloud revenue by 3% and 8%, respectively, to reflectthe aggressive expansion of peers. We maintain our FY18forecast andvaluation. We expect Alibaba Cloud revenue to grow to RMB42bn (10% of totalrevenue), and non-GAAP operating margin to reach 14% in CY2020. Weenvision a slight margin for CY18.    Maintaining Alibaba TP at USD201    Our TP is based on an unchanged SOTP: 1) 33x CY18E P/E for e-commerce; 2)8x CY18E EV/Sales for Alibaba Cloud; 3) 29x CY18E EV/EBITDA for Ant’spayment and WM business, and 5.5x CY18E P/BV for the loan and insurancebusiness; 4) Cainiao valuation on latest capital raise; and 5) Net cash excludingAlibaba Cloud. Risks: slower revenue and user growth; intensifyingcompetition; and inability to expand or monetize Alibaba Cloud business.

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