Adjusted profit was better than unanimous expectations
Alibaba Health 2HFY24's total revenue was 14.07 billion yuan, -7.8% year over year. The growth rate was lower than Visible Alpha (VA, same caliber)'s consistent forecast of -0.3%, and adjusted net profit of 80 million yuan, an increase of 97.1% year over year, better than VA's agreed estimate of 430 million yuan. We attribute this to the high net profit margin marketing service revenue combined with contributions (consolidated from February 20). We raised the FY25/FY26 adjusted net profit forecast to RMB 21/2.7 billion (previous value: RMB 1.15 billion) and introduced a new FY27 forecast of RMB 3.2 billion. We rolled the valuation window to FY25 and adjusted the target price to HK$4.4 based on DCF (previous value: HK$4.0; WACC was 9.4%, with a sustainable growth rate of 2.5%, unchanged).
The acquisition of Ali Mama's advertising business was completed, consolidating the platform's comprehensive sales capacity. Alibaba Health Pharmaceutical's proprietary business 2HFY24 generated revenue of 12.29 billion yuan, -9.0% year-on-year, and the growth rate was lower than the VA's agreed forecast of -1.5%; the pharmaceutical e-commerce platform business revenue was 1.31 billion yuan, an increase of 5.7% year-on-year, and the increase was lower than VA's agreed 13.8% forecast. By the end of 2HFY24, the number of online members in the company's pharmaceutical self-operated business reached 77 million, the same as 1HFY24. The company's 2HFY24 adjusted net profit of 80 million yuan, up 97.1% year on year, corresponding to the adjusted net profit margin of 5.7%, up 3.1 pp year on year.
During the reporting period, the company completed the acquisition of advertising rights for Alibaba Group's Tmall Health category merchants. Looking forward to the future, while providing incremental advertising revenue, the business is also expected to support a steady increase in the overall commission rate of the 3P business by improving the platform's integrated marketing and sales capabilities.
Strengthen the optimization of operating efficiency and promote steady growth in the number of platform merchants
Management shared some business-side trends: 1) Logistics side: The company further optimizes the layout of the pharmaceutical logistics network and optimizes the level of fulfillment rates on the basis of ensuring performance efficiency. The company upgraded to a next-day door-to-door delivery experience in core cities such as Shanghai, Hangzhou, and Suzhou; 2) e-commerce platform merchant construction side: by the end of 2HFY24, the company had served more than 35,000 merchants, +28% year over year; 3) Healthcare service sector: By the end of 2HFY24, the total number of practicing physicians, pharmacists, and nutritionists who had signed contracts with the company to provide online health consultation services was over 220,000, an increase of 20,000 compared to the end of 2HFY23. 45 times. The overall platform management ecosystem is stable, moderate and positive.
Strengthen advertising operations and deepen vendor cooperation to establish long-term healthy growth momentum. Management guided the company's revenue growth target for FY25 to be 15% or more, and the IFRS net profit margin reached about 5%. The company stated that the two major priorities of future retail business are: 1) using newly acquired advertising methods combined with platform operation to improve self-operation efficiency and merchant return, and 2) use the two grippers of tripartite business and self-management to cooperate deeply with manufacturers to ensure that new products and first products are displayed on Alibaba Health and improve the consumer experience. In addition, the company will follow the Group's strategy and implement O2O related layouts in some products suitable for near-end logistics.
Risk warning: New user acquisition falls short of expectations; industry competition intensifies.