Fitch Ratings on Oct. 10 affirmed the long-term foreign-currency issuer default rating and senior unsecured rating of Alibaba Group Holding Ltd. at A+ with a stable outlook.
The rating agency cited the Chinese e-commerce giant's strengthened business profile, its wide economies of scale, increased revenue diversity, continued robust profitability and high free cash flow generation.
Fitch said Alibaba is still the world's largest e-commerce company by gross merchandise volume that is about three times that of Amazon.com Inc. The agency added that it expects Alibaba to defend its market leadership with further entries in lower-tier Chinese cities and if the group sees greater multi-platform cross-selling, improved product-sourcing, more investments in talent and technology infrastructure, and the addition of new value-added products.
The agency noted that Alibaba's purchase of a 33% stake in Ant Financial Services Group would only have a limited financial impact as it was a non-cash transaction.
Fitch said it projects revenue to remain robust at compound annual growth rate of about 17% in fiscal years 2019-2022, operating EBIT margin at 23% to 24% in fiscal years 2020-2022 and capital expenditure-to-sales ratio of 9% to 12% in fiscal years 2020-2022. It also expects Alibaba to repurchase $6 billion worth of stock in fiscal years 2020-2021. Fitch said it does not forecast a cash dividend in the next three to four years.
The agency said an upgrade is unlikely in the medium term. However, it said it may consider an upgrade if Alibaba develops businesses that significantly diversify cash generation away from operations that are subject to the Chinese government and regulatory risk.
A downgrade is likely if regulatory or legal intervention causes adverse change in Alibaba's operations, profitability or market share, or if the company sees major loss of market share in key products and services. among other reasons.
