We believe that in the process of upgrading the company from the previous strategy phase 1.0 (with the construction of Internet medical models, scenarios and traffic as the main goal) to the strategy phase 2.0 (focusing on deepening medical and health services and focusing on the quality of user experience), price cuts and suspension of some high-value services in the short term will bring greater performance pressure. However, we also believe that the upgrading of the company's strategy is expected to improve C-end users' willingness to pay and ARPU, effectively reduce customer acquisition costs, and open up long-term performance growth channels driven by favorable policies. Downgrade to "hold" and adjust the target price to HK $28.50.
Expand the coverage by reducing the unit price, but the growth rate of medical services may be lower than expected in the short term. The company began to promote the strategy 2.0 upgrade and change the product promotion strategy in mid-2020. among them, the medical services sector, as the focus of the company's future development, is greatly affected by the short-term impact, and the annual growth rate may be significantly lower than that in 2020 and 1H21 growth. The main reasons: 1) the company reduces the unit price of services to expand user coverage, and revenue growth slows down when volume increases and prices fall. The decline in the growth rate of sector income caused by the decline in the average unit price may be lower than the market and we had expected. 2) the company's own doctor team has previously offered free online consultation, some of which can be converted into revenue from prescription drug sales, but from mid-September 2021, the company has cancelled its own doctor free consultation, and prescription drug sales may be dragged down. The company won some medical service orders from enterprises at the end of 2021, but it is expected that the initial orders will still be based on basic orders. Through 3-6 months of user training, the single customer value is expected to accelerate from 2H22, driving the overall growth of the medical services sector.
Under the new promotion mode, the rate of sales expenses is short-term or shows a downward trend. The customer acquisition mode of the company through advertising has gradually stopped since the end of 3Q21, and the new promotion strategy no longer emphasizes obtaining orders and traffic through advertising, but mainly depends on: 1) embedding Ping an Group's financial system products (such as insurance policies) to obtain extensive customer coverage at a lower cost; 2) extending the enterprise resources of Ping an Group to obtain more orders from enterprise customers and employees. 3) Ping an Health develops the customer network through the sales team. The sales expense rate under the new promotion mode is expected to show a downward trend in the short term, and the stickiness of customers and employees is relatively higher, which is also expected to reduce the pressure of Ping an Health loss.
Downgrade the rating and target price. We lowered the company's 2021-23e revenue forecast by about 1-5%, and used the segment summation method (SOTP) based on the market-to-sales ratio (PCMR) to value Ping an Health.
Taking into account the increase in short-term performance uncertainty and the overall decline in industry valuation under the company's strategic transformation, we lowered our target 2022E Pmax S to 5.0x, 4.2x, 2.0x and 2.0x for online medical services, consumer healthcare, online mall, health management and interactive sectors, respectively, and reached a target price of HK $28.5. The target price is downgraded to "hold" corresponding to 3.3x 2022E Pmax S (below the industry average, taking into account lower income growth) and limited upside (10%).
Investment risk: policy change; growth of medical services is not as expected; the progress of strategic upgrading is slow.