Revenue and profit all exceeded Bloomberg's unanimous expectations
Alibaba Health 1HFY24 had total revenue of 12.96 billion yuan, up 12.7% year on year. The growth rate was better than Bloomberg's unanimous forecast of 11.1%, and adjusted net profit was 640 million yuan, up 82.7% year on year, better than Bloomberg's unanimous forecast of 250 million yuan. According to the company announcement, Ali Health will receive 20% of the marketing service fees collected by Ali Mama's target merchants whose main business category is healthcare for product promotion in the healthcare category. We believe this move is expected to help further improve the company's ecological business and increase platform profits. We raised our adjusted net profit forecast for FY24/FY25/FY26 to RMB 12/18/22 billion (previous value:
RMB 10/13/17 billion yuan). Our target price was adjusted to HK$5.84 based on DCF (previous value:
5.65 HKD; WACC 9.4%, sustainable growth rate 2.5%, unchanged), maintaining buying.
Operating efficiency improved, net profit margin increased year over year
Alibaba Health 1HFY24 had total revenue of 12.96 billion yuan, up 12.7% year on year, and growth rate better than Bloomberg's unanimous forecast of 11.1%, mainly due to steady growth in proprietary pharmaceutical business and healthcare and digital services business; adjusted net profit of 640 million yuan, up 82.7% year on year, corresponding to adjusted net profit margin of 5.0%, up 2.0pp year on year, mainly due to a 2.1pp year-on-year improvement in gross margin. The company implements refined operations and digital upgrades, leading to improved pricing capabilities and optimization of operating efficiency. Furthermore, the company's continuous promotion of healthcare service processes and product experience upgrades has helped strengthen the user platform's drug purchasing mentality.
By the end of 1HFY24, the number of online members in the company's pharmaceutical business exceeded 77 million, an increase of 21%.
The company announced the acquisition of Ali Mama's exclusive marketing review authority for the healthcare category at a price of HK$13.5 billion. According to the announcement, Ali Health has signed an exclusive service framework agreement with Ali Mom to provide marketing review and value-added services for Ali Mama's healthcare category merchants. The amount obtained is equivalent to 20% of the “marketing service fees collected by Ali Mom for product promotion in the healthcare category by target merchants whose main business category is health care”. According to management disclosure, the simulated estimate of this move could contribute about 1.2 billion yuan in revenue to the company in the previous fiscal year (equivalent to 4.5% of the company's total revenue in FY23) and corresponding pre-tax profit. Management said that in the future, part of the profits will be invested in incentives for merchants and the improvement of consumer service experience. We expect this strategic resource injection from within the Group to help Alibaba Health continue to improve its platform business ecosystem and increase profits while increasing revenue.
The long-term trend of digitalization of Internet medical care has not changed
According to the Shanghai Government Network, since the beginning of November, Shanghai has launched a pilot medical insurance payment process for online pharmacies. When insured citizens are hungry or order products with the word “medical insurance” on the Meituan takeaway platform, they can pay for medicines through their personal health insurance accounts. Under the guidance of further implemented policies, we expect that Internet medical service providers, including Alibaba Health, will continue to deepen their ability in integrated online and offline operations to help balance the distribution of medical resources in China.
Risk warning: The acquisition did not advance as expected; the revenue and profit contribution of the acquisition business fell short of expectations; competition intensified, and the company's investment was higher than expected, diluting profits.