Short-term revenue growth faces fluctuations, focusing on the broad pharmaceutical e-commerce market for a long time
We believe that Alibaba Health may face high base pressure that exceeds our previous expectations in the short term. We lowered its non-IFRS net profit forecast to RMB 10/15/20 billion (previous value: RMB 12/18/22 billion yuan) and adjusted the target price based on DCF to HK$4.0 (maintaining the assumption that WACC was 9.4% and a sustainable growth rate of 2.5%; previous value HK$5.84). The new target price corresponds to 60.0/44.2/35.7 times the FY24/25/26 forecast adjusted PE. On January 17, 2024, Ali Health announced that it has completed the previously announced acquisition of Ali Mama's medical product marketing and advertising business. We expect that the merger of this business will each bring incremental contributions of 13/10 million yuan to Alibaba Health's FY24 revenue and IFRS net profit, and FY25 may further expand to 1.00/80 billion yuan.
A high base puts pressure on revenue growth in the short term
Affected by the high base effect caused by the phased increase in demand for online medical care during the FY23 pandemic, we expect the total revenue of Alibaba Health FY24 to fall 4.7% year over year to 25.5 billion yuan, of which total revenue of 2HFY24 (October 2023 to March 2024) may fall 17.7% year on year, mainly affected by the 23.6% year-on-year decline in pharmaceutical self-operated business revenue, partly offset by 29.0% year-on-year increase in pharmaceutical platform business revenue (benefiting from the combined sales of advertising business). We expect Alibaba Health's FY24 gross margin to increase by 1.6pp to 22.9% year on year, mainly due to the high profit margin advertising business consolidation support. We expect IFRS net profit to increase 31% year over year to 70 million yuan, and non-IFRS net profit to increase 32% year over year to 990 million yuan.
Service capacity building and supply chain efficiency are still the keys to long-term success
After the high base pressure of the pandemic, we expect the Internet healthcare industry to return to an endogenous growth trajectory. We are still optimistic about the high efficiency and outstanding contributions that Internet medical platforms have shown in addressing unequal distribution of medical resources and optimizing the supply of medical products. We expect Internet medical platforms, including Ali Health, to further promote the healthy development of the industry and the continuous construction of user mentality by enriching the supply of medical products and improving the scope of medical O2O capabilities and services. We believe that the Internet medical industry is still at an early stage of increasing penetration, so we believe that effective acquisition of users will be a key task of FY25 for Ali Health, which will be one of the key drivers for steady growth in the new cycle.
Risk warning: New user acquisition falls short of expectations; industry competition intensifies.