occurrences
1) The company announced the interim results announcement for the 2024 fiscal year. 2) The company announced the acquisition of the exclusive marketing review rights of Alibaba Mom (a subsidiary of Alibaba Group) for marketing review services for healthcare products and services, as well as ancillary rights that can provide value-added services to target healthcare merchants.
reviews
Revenue was in line with expectations, and the pharmaceutical business and healthcare and digital services business achieved relatively rapid growth. FY24H1 achieved revenue of 12.956 billion yuan (+12.7%). Among them, ① the pharmaceutical self-operated business achieved revenue of 11.447 billion yuan (+13.5%), mainly due to the company's precise marketing strategy and optimization of service experience such as logistics and distribution, which improved users' mentality in purchasing drugs.
As of FY24H1, the number of user members of online self-operated stores reached 77 million (+21.0%).
② The pharmaceutical e-commerce platform business achieved revenue of 1,021 billion yuan (+2.1%), and product richness continued to grow. As of FY24H1, Tmall Health has provided more than 64 million SKUs (inventory units) in service categories, an increase of more than 16 million over the same period last year.
③ The healthcare and digital services business achieved revenue of 488 million yuan (+16.4%), and the company continued to improve the integrated online and offline service system. As of FY24H1, the total number of licensed physicians, licensed pharmacists, and nutritionists who have signed contracts with the company exceeded 210,000, an increase of more than 30,000 over the same period (including the number of Fawn TCM doctors).
Operating efficiency has been steadily improved, and refined operations have led to a high rate of profit growth. FY24H1 achieved net profit of 445 million yuan (+172.2%) and adjusted net profit of 642 million yuan (+82.7%), with significant profit growth. The company's current gross margin increased to 22.1% (+2.1pct), and the net profit margin (adjusted caliber) increased to 5.0% (+1.9pct), mainly due to improved pricing capacity and optimization of operating efficiency brought about by refined operations and digital upgrades. The performance fee rate, sales expense ratio, management expense ratio, and R&D expense ratio of FY24H1 companies are 9.6% (+1.2pct), 6.7% (-0.8pct), 1.3% (-0.2pct), and 2.5% (-0.4pct), respectively. The overall cost rate was 20.1% (-0.1pct), and the operating efficiency was steadily improving.
The acquisition of the parent group's healthcare advertising and marketing business is expected to drive the growth of the pharmaceutical e-commerce platform business. On November 28, 2023, the company acquired Ali Mama's exclusive rights to 1) marketing review services and; 2) marketing promotion consulting services under the Tmall platform's healthcare category. The acquisition was worth HK$13.5 billion and was paid in cash through HK$2 billion in cash. The remaining portion was issued approximately 2,558 million shares to Ali Mama at HK$4.5 per share, accounting for 15.90% of the share capital after issuance. After the transaction was completed, Alibaba's shareholding in Alibaba Health increased from 57% to 64%. The company will receive 20% of the marketing service fees collected by Ali Mama for product promotion under the health care category in the form of service fees. Related assets, FY22/FY23, achieved revenue of 1,201 million yuan/1,202 million yuan respectively, gross margin of about 99.8%/99.8%, and profit after tax of 899 million yuan/900 million yuan respectively. We believe this acquisition will help both parties leverage their respective advantages in platform operation and marketing promotion, and promote the growth of the pharmaceutical e-commerce platform business.
Profit forecasting
We believe that with the implementation of regulatory policies such as new regulations on online drug sales, and industry drivers such as the increase in the penetration rate of online and offline Internet medical services and the outflow of prescriptions, the company's scale effect is expected to continue to expand. We expect the company's revenue for the 2024-2025 fiscal year to be 298.73/35.325 billion yuan (previous value was 333.66/41,029 billion yuan, the reduction is mainly due to the rapid decline in sales of products related to the epidemic in fiscal year 2024), with corresponding growth rates of 11.6%/18.3%, respectively. Considering the contribution of the acquisition of the advertising and marketing business, we expect the company's net profit for the 2024-2025 fiscal year to be $941/1,179 million, respectively (previous value was $960/1,294 million). The main reason for the reduction is the same as above. We expect the gross profit contribution from the acquisition of the advertising and marketing business to be approximately RMB 301/RMB 1,298 million respectively in 2024-2025. It is estimated that this portion of profit will be mainly invested in sales and marketing expenses to enhance the competitiveness of the platform).
valuations
According to the absolute valuation method, we forecast that the company's equity value after one year will be $78.642 billion, corresponding to the stock price of HK$6.34 per share (based on WACC 8.1%, the sustainable growth rate remains unchanged at 3.5%, not considering the impact of increased dilution). The target price will be reduced by 24% to maintain the “superior to market” rating.
risks
Sales fell short of expected risks, and Internet-related policy risks.