Combining the actual development of the Internet medical and pharmaceutical e-commerce industries, the company explores and lays out a digital health management model with “test+medical+medicine” as the core, and the policy side continues to affirm the value of the new business format of the industry. As the “Internet+Healthcare” vanguard, the company's pharmaceutical self-management and e-commerce platform businesses are expected to maintain steady growth, and the cost investment results are expected to gradually show. The company continues to invest in medical AI, and will carry out large-scale AI model research in the medical field to serve the medical health management of C-end users. Maintain the “Overweight” rating.
Online medical care continues to penetrate, promoting “test+medical+medicine”. Faced with the development problems of traditional Internet medical care, the company proposed that its core triangle of digital health management is “test+medicine+medicine” to prevent and control the occurrence and development of diseases through health information collection and analysis, health risk and assessment, and health intervention. Specifically, testing, and related technology and equipment are gradually being popularized; medicine and doctors play a huge role, and the big medical model is expected to provide assistance in the future; pharmaceuticals and pharmaceutical companies are introducing new ideas, pharmaceutical e-commerce is improving accessibility, and Internet medical treatment has eliminated misunderstandings about medication use, improved compliance, and upgraded the quality of health management. As of March 2023, the total number of licensed physicians, pharmacists, and nutritionists who have signed up to provide online health consultation services on the company's platform is nearly 200,000, about 5 times that of before the pandemic. The average number of online consultation services exceeds 400,000 per day, serving nearly 300 million users.
Continue to invest in medical AI to empower a new ecosystem of health management. Beginning in 2020, the company invested in the construction of a medical knowledge map, the cornerstone of medical AI, which includes a collection of Chinese clinical terms, a collection of drug terms, and a knowledge map of rational drug use. It is an important scientific research project in cooperation with the National Science and Technology Terminology Assessment Committee. According to the company's WeChat account, under the guidance of the Zhejiang Provincial Health Commission, the company will conduct special research on AI models in the vertical field of medical care, which will be applied to healthcare services for ordinary users in the future. The company's health management ecosystem will be deeply integrated with its digital capabilities. The former continuously improves the service capabilities and service paradigm of health management, while the latter provides technical support for the former, so that every user can receive accurate and targeted health services.
Self-employment in pharmaceuticals is growing rapidly, and market and R&D efficiency are improving. In fiscal year 2023, the company's pharmaceutical self-operated business revenue reached 23.592 billion yuan, up 31.7% year on year. The company continued to enrich its B2C product categories and SKUs, expand prescription drug sales scale by deepening cooperation with pharmaceutical companies, and continuously optimize user experience; pharmaceutical e-commerce platform business achieved revenue of 2,238 million yuan, up 10.5% year on year; healthcare and digital services business revenue was 933 million yuan, up 45.7% year on year. On the cost side, the company's performance expenses, sales and marketing expenses, administrative expenses, and product development expenses were 29.07/17.69/3.79/678 billion yuan, respectively, with a year-on-year change of +38.6%/-10.7%/-3.9%/-7.0%. The company is speeding up the cost control process, and the scale effect is expected to gradually be reflected.
Risk factors: Pharmaceutical e-commerce regulatory policies have been tightened, competition within the industry has intensified, the transformation of Alibaba user traffic resources has fallen short of expectations, and the transformation of the company's market and R&D investment has fallen short of expectations.
Profit forecast, valuation and rating: Based on the company's fiscal year 2023 performance and recent developments in the pharmaceutical B2C e-commerce industry, we adjusted the company's revenue forecast for the 2024-2025 fiscal year to 310/35.7 billion yuan (the original forecast was 322/40.1 billion yuan), adding the 2026 revenue forecast to 40.2 billion yuan. JD Health and Safe Doctor were selected as comparable companies. The average PS of the two in 2024 compared to Wind's unanimous expectations was 2.3 x. We gave the company 2.3 x PS for fiscal year 2025, corresponding to a market capitalization of RMB 82 billion /HK$88 billion, corresponding to a target price of HK$6.5 billion, maintaining the “increased holdings” rating.