The dividend of medical reform policy will promote the development of Internet health care.

China's medical system has carried out omni-directional reform in hospitals, drug circulation and medical insurance payment, and the positioning of Internet medical care is gradually clear. Its main function is to supplement physical hospitals and promote graded diagnosis and treatment and prescription drug outflow.

There is a broad space for Internet medical care, and pharmaceutical e-commerce is an oligopoly market.

The industry's CAGR in the next decade is 29.7%, of which the largest is the pharmaceutical e-commerce market, with a scale of 157 billion yuan. At present, pharmaceutical e-commerce mainly depends on non-drug sales, and the outflow of prescription drugs will bring new incremental space in the future. JD.com and BABA together account for 71% of the pharmaceutical e-commerce industry, and online and offline pharmacies have their own advantages.

Pharmaceutical e-commerce with rich commodities and performance-to-price ratio continues to expand the basic pharmaceutical e-commerce users are older than ordinary e-commerce, the epidemic has brought significant growth. Online SKU is more than 30 million, and the number of goods is much higher than offline, mainly andrology, skin, gastrointestinal drugs. From the perspective of economic model, the operating expense rate of pharmaceutical e-commerce is lower, but the low price strategy is adopted to obtain users, and the profit level is lower than offline due to low gross profit.

Alibaba Health Information Technology is based on pharmaceutical e-commerce and constantly improves the ecology.

Alibaba Health Information Technology's proportion of proprietary business continues to increase, mainly selling drugs, benefiting from platform drainage and category expansion to maintain a high growth of more than 60%. The platform is rich in SKU and has the largest transaction scale, with a growth of more than 40%. However, due to the share of BABA Group, the actual commission rate of each category is 1.5%, 2.5%, which is lower than that of ordinary e-commerce. In addition, Alibaba Health Information Technology has long accumulated in health services and digital infrastructure business, trying to establish an ecological closed loop.

Risk hint

Changes in medical policy affect the prospects of the industry, data security and anti-monopoly regulation affect the mode of transportation and management, product problems or improper use of drugs lead to accidents affecting the company's reputation and intensified competition in the industry.

Coverage for the first time, giving "overweight" rating

Give the company a reasonable valuation range of HK $11.58-14.6, a premium of 10% to the current share price of 39%. We estimate that the company's FY22-FY24 earnings per share will be 0.02 yuan per share, with a profit growth rate of-14.2%, 99.6% and 54.4% respectively, and will be rated as "overweight".