The annual income, gross profit margin and net loss of homing in 2021 are in line with market expectations; although the overall growth is weak, the upgrade of Strategy 2.0 has achieved initial results, with a significant increase in the number of users, consultation volume and payment conversion rate. In 2022, the company will still face greater short-term performance pressure in the transformation, but we also believe that Strategy 2.0 is expected to increase the willingness of C-end users to pay and effectively reduce customer acquisition costs in the medium to long term. Taking into account the high uncertainty of short-term performance and the downward adjustment in the valuation hub of the industry as a whole, we lowered our target price to HK $20.0 and maintained our "hold" rating.
The results in 2021 are in line with expectations and are expected to maintain single-digit growth in 2022: revenue rose 6.8 per cent year-on-year to 7.3 billion yuan and gross profit margin fell 3.9pcts to 23.3 per cent, both in line with expectations. Net loss / adjusted net loss expanded to 1.5 billion / 1.4 billion (vs 2020 loss: 950 million / 520 million). 2H21 revenue fell 15% year-on-year to 3.5 billion, and gross profit margin fell 5.9pcts to 19.4% year-on-year. Thanks to the improvement of the company's customer acquisition method (reducing high-cost flooding, focusing on C-end promotion and B2C customer acquisition), 2H21 marketing expenses saved 19%, and we believe that the expense rate still has room for decline in the future. The company further strengthened its coverage of Ping an Group's financial customers, contributing 36.1% of its revenue from related party transactions with Ping an Group for the whole year, slightly higher than the 35.8% for the whole of 2020. The company expects revenue growth in 2022 to rise steadily in medium-to-high units and overall gross profit margin, in which 1H22 may continue to be greatly affected by strategic adjustment, while 2H22 will rebound; management will maintain the guidance of break-even in 2024-25.
The proportion of medical service revenue has increased, and the profit margin in the strategic adjustment is under pressure: in 2021, medical service revenue increased by 8% to 2.3 billion yuan compared with the same period last year, accounting for 31.2% of total revenue year-on-year. The company aims to increase the proportion of medical service revenue to more than 50% within 3-5 years.
The gross profit margin of the sector fell 9.5pcts to 36.1%, mainly due to 1) the strategic adjustment of members and the decrease of the proportion of member products in income, resulting in structural changes in gross profit of the sector business; 2) with the stability of the epidemic, the performance rate of service items in member products gradually rebounded and the cost increased accordingly. Revenue from health services rose 6 per cent year-on-year to 5 billion yuan, while gross profit margin fell 1.4pcts to 17.5 per cent, mainly due to a gradual rebound in the compliance rate of physical examination after the epidemic and a reduction in the budget of advertisers.
Maintain the "hold" rating: we downgrade the company's 2022-23e revenue forecast by about 5-8%, and use the segment summation method (SOTP) based on the market-to-sales ratio (Pmax S) to value Ping an Health.
Considering the high uncertainty of the company's short-term performance under the strategic transformation, and the profit model needs to be further confirmed, and combined with the valuation level of the comparable company, we give the medical services and health services business a target of 2022 Pmax S for 4.0x and 1.5x respectively, and get the target price of HK $20.0.
The target price corresponds to 2.4 x 2022E Pmax S (slightly below the industry average and 1.7 standard deviations from the company's average over the past three years) and limited upward space (14%), maintaining a "hold" rating.
Investment risk: policy change; growth of medical services is not as expected; the progress of strategic upgrading is slow.